Provisional tax is exactly what the word says. A taxpayer provides for his final tax liability in advance by making at least two payments in the course of the year of assessment. These payments are based on the taxpayer’s estimated taxable income. When the final tax liability is determined upon assessment the payments already made are subtracted from the liability and the taxpayer only pays in the outstanding amount or receives a refund, if payments made during the year exceeds the final liability on assessment.
It is not a separate tax but merely a mechanism to pay the income tax during the tax year in which the income is earned.
The aim is to help taxpayers meet their liabilities in the form of two payments, instead of in the form of a single, large sum on assessment. A third payment after the end of the tax year, but prior to the issuing of the assessment, is optional.
Who should pay provisional tax?
- Any person who receives income (or to whom income accrues) other than remuneration is a provisional taxpayer. Examples include rental income, interest income above the annual exemption or other income from the carrying on of any trade.
- Companies (excluding public benefit organisations and recreational clubs).
- Trusts and all beneficiaries of trusts
- Anyone that the Commissioner notifies that he/she is a provisional taxpayer.
- In terms of the definitions of “employee” and “provisional taxpayer” in paragraph 1, as well as the provisions of paragraph 11C, directors of private companies and members of close corporations are regarded as employees. They are not considered to be provisional taxpayers unless they have income that falls within the scope of provisional tax income.
How are the provisional payments determined and when should it be paid?
The amount of tax payable and the date of payment are determined as follows:
| First Period | Second Period | Third Period (voluntary) |
| Half of total estimated tax for the full year; | The total estimated tax for the full year; | The total tax estimate payable for the full year; |
| Less the employees tax deducted for this period (6 months); | Less the employees tax paid for the full year; | Less the employees tax paid for the full year; |
| Less any allowable foreign tax credits for this period (6 months). | Less any allowable foreign tax credits for the full year; | Less any allowable foreign tax credits for the full year; |
| Less the amount paid for the first period. | Less the amount paid for the 1st and 2nd provisional tax periods. | |
| First payment must be made within six months of the beginning of the year of assessment. | Second payment must be made no later than the last working day of the year of assessment. | (voluntary) Within seven months of the year of assessment, where the year of assessment ends in February, and within six months of the year of assessment, in any other case. |
Interest and Penalties
Section 89bis interest:
- Interest at the prescribed rate (currently 8,5% per annum subject to changes as published in Government Gazette) is payable on late payments in respect of first, second and third periods.
Section 89quat interest:
- Interest in terms of Section 89quat is either levied on an underpayment of tax or paid on an overpayment of tax from the ‘effective date’.
Paragraph 20 penalty:
Provisional taxpayers with a taxable income of up to R1 million
- An estimated taxable income for the second period must be equal to the lesser of the basic amount or 90% of the actual taxable income for the year.
- Where the estimate is less than 90% of the actual taxable income and also less than the basic amount, a penalty is levied (deemed to be a percentage based penalty under Chapter 15 of the Tax Administration Act) equal to 20% of the difference between the amount of normal tax calculated in respect of such taxable estimate, and the lesser of:
o The amount of normal tax calculated in respect of a taxable income equal to 90% of such actual taxable income; and
o The amount of normal tax calculated in respect of a taxable income equal to such basic amount, at the applicable rate.
Provisional taxpayers with a taxable income above R1 million
- An estimated taxable income for the second period must be equal to 80% of the actual taxable income for the year.
- A penalty, which is deemed to be a percentage based penalty imposed under Chapter 15 of the Tax Administration Act; will be equal to 20% of the difference between the amount of normal tax as determined in respect of such estimate, and the amount of normal tax calculated, at the rates applicable in respect of such year of assessment, in respect of a taxable income equal to 80% of such actual taxable income.
Some final notes on provisional tax:
- SARS will no longer be issuing IRP6 returns to provisional taxpayers. If a taxpayer qualifies as a provisional taxpayer, he/she must request an IRP6
- A taxpayer can request an IRP6 return via the following channels:
- eFiling
- The SARS Contact Centre
- The SARS branch office / Taxpayer Service Centre
- If a taxpayer is not liable for provisional tax, he/she is not required to submit IRP6 returns.
- If a taxpayer is liable for provisional tax and the amount payable for the period is nil, he/she must still submit the return.
- Where the estimate must be made more than 18 months from the latest preceding year and in respect of a period that ends more than one year after the latest preceding year of assessment, the basic amount shall will be increased by an amount equal to eight per cent (8%) per annum of that amount, from the end of such year to the end of the year of assessment in respect of which the estimate is made.
- For further detail, visit the official SARS website (www.sars.gov.za) where you will find a comprehensive guide on provisional tax or you can contact your friendly Newtons Tax Advisor.
Source: www.sars.gov.za
Article written by Elizna Prinsloo
