Penalties

Penalties are punishments or fines imposed for violating tax laws or regulations. They serve to ensure compliance, deter negligence, and punish intentional wrongdoing.

Penalties can be broadly categorized into administrative and criminal types.

1. Administrative Penalties Imposed for tax-related offences such as: Late filing of tax returns Late payment of taxes Negligence in reporting Providing false or incorrect returns/statements Characteristics: Added to the tax amount owed Assessed alongside the tax Typically monetary fines, not imprisonment

Example: Filing an income tax return after the due date may attract a penalty of a certain percentage of the tax payable.

2. Criminal Penalties Enforced only through legal prosecution for serious offences, such as: Tax evasion Fraudulent activities Wilful falsification of accounts or documents Characteristics: Can lead to imprisonment May include monetary fines in addition to jail terms Acts as a strong deterrent against deliberate tax fraud

Example: A person deliberately hiding substantial income to avoid tax may face criminal charges and imprisonment.

Key Differences Feature Administrative Penalty Criminal Penalty:

Enforcement Added to tax amount Legal prosecution required Nature Monetary fines Fines + possible imprisonment Purpose Encourage compliance, deter negligence Punish intentional fraud

Examples Late filing, negligence, false statements Tax evasion, fraud, falsification