Types of Penalties for Failure to Report
Many taxpayers are unaware of the consequences of late reporting. From our experience as former inspectors and coordinators at the Tax Authority, we wanted to provide some insights on the risks and technically how it works. It is also important to understand the technical issues involved in submitting the various reports and filings that apply to taxpayers with an active file in the Income Tax Authority. Below we present the main provisions of the law. Keep in mind that most “penalties” are actually imposed automatically by the Tax Authority’s computerized system (SHAAM – Automated Processing Service) and therefore do not require any manpower. Other actions are carried out based on the powers given to the assessing officer.
Civil Penalties and Fines
This refers to the civil section of the ordinance, which details civil penalties through the imposition of fines for failing to fulfill the taxpayer’s obligations to the Tax Authority. A civil fine is an addition to the tax collected under the tax ordinances. In cases of civil penalties, sanctions may also be imposed, such as late payment fines, increased tax rates, and ongoing advances. Section 188 of the Income Tax Ordinance states that if a person does not submit a report by the deadline specified in Section 132, a fine of 500 shekels will be imposed for each month of delay. It is important to know that even after paying a fine under Section 188 for failing to submit an annual report, the taxpayer’s criminal liability under the Income Tax Ordinance still exists.
Criminal Offense
A person who, without sufficient reason, does not submit an annual report by the legal deadline has committed a criminal offense according to the Income Tax Ordinance. The legal deadline for submitting a report for a particular year is the end of April of the following year unless another legal deadline has been set with the approval of the assessing officer. The punishment for the offense is imprisonment for one year or a fine as stated in Section 61(a)(2) of the Penal Code, with the amount of the fine potentially reaching thousands or even tens of thousands of shekels, depending on the circumstances. In this case, if a person is sentenced to imprisonment for more than six months but not more than a year, the fine can reach up to 29,200 NIS or both penalties combined.
Financial Penalty for Failure to Submit an Online Report
Section 195b of the Income Tax Ordinance states that if an online report is not submitted by the deadline specified in Section 132 or 166 of the Ordinance, as applicable, the assessing officer may impose a financial penalty on the taxpayer in the amount of 540 NIS for each full month of delay in submitting the report. Additionally, Section 195h(a) states that even if the taxpayer has paid the financial penalty, the taxpayer’s criminal liability for the violation still exists!
Administrative Offenses
An administrative fine is essentially a criminal fine that the Tax Authority is authorized to impose as an alternative to an indictment for “technical tax offenses.” This refers to all those minor violations that typically occur due to managerial failures or human errors made in good faith, commonly known in professional jargon as technical tax offenses. The administrative fine is the punishment for these relatively minor criminal offenses, and its purpose is to deter taxpayers from committing tax offenses while simultaneously reducing the number of cases tried in court.
Remember, Ignorance of the Law Does Not Exempt from Punishment!
Recently, following the waves of protest against the judicial reform / regime revolution, there have been calls from taxpayers to not submit reports and not pay taxes. It is important to consider that not submitting a report and failing to report is probably not the right way to protest. The consequence of not reporting can end in fines exceeding ten thousand NIS per year.
