Provisional Tax is not a separate tax from income tax. It is a method of paying the income tax liability in advance, to ensure that the taxpayer does not have a large tax debt on assessment. The tax liability is spread over the relevant year of assessment where it requires the taxpayers to pay at least two amounts in advance, during the year of assessment, which are based on estimated taxable income.
You are considered a provisional taxpayer if you are an individual who earns income which is not remuneration, an allowance or advance as contemplated in section 8(1) or who earns remuneration from an employer that is not registered for employees’ tax, a company, or a person notified by the SARS Commissioner that he/she is a provisional taxpayer.
Provisional tax payment can be made in three periods:
First period: This payment must be made within six months from the commencement of the year of assessment in question.
Second period: This payment must be made not later than the last day of the year of assessment in question.
Third period: This payment will be made no later than 6 months after the last day of the year in question (Voluntary payment)
Taxpayers are expected to submit an estimate of the total taxable income which will be derived by the taxpayer in respect of the year of assessment for which the provisional tax is payable.
This estimate must not include any retirement fund lump sum benefits, retirement fund lump sum withdrawal benefit or any severance benefit received by or accrued to the taxpayer during the relevant year of assessment. The return must be submitted even if the provisional tax calculation results in a nil payment.
The amount of estimate submitted by a provisional taxpayer shall not be less than the basic amount applicable to that particular estimate, unless the Commissioner after considering the circumstances of the case agrees to an estimate that is lower than the basic amount.
The basic amount is the taxpayer’s taxable income assessed by the Commissioner for the latest preceding year of assessment LESS the amount of any taxable capital gain in that year of assessment. The basic amount for all taxpayers must be increased by 8% if the estimate is made more than 18 months after the end of the latest preceding year of assessment.
Interest and penalties can be imposed on the underpayment and understating of the estimate of taxable income. Interest is levied at 10.50% per annum (subject to changes as published in Government Gazette) whilst the penalty amount depends on whether the actual taxable income is more or less than R1 million.
A penalty levied for the underestimation of actual taxable income on the second period is reduced by the penalty imposed for the late payment of provisional tax under paragraph 27.
