Provisional Tax 101-GWM Chartered Accountants
What is Provisional Tax?
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 remain with a large tax debt on assessment.
Who must pay Provisional Tax?
Any person who receives income (or to whom income accrues) other than a salary, is a provisional taxpayer. A Company or Close Corporation is also automatically a provisional taxpayer.
Natural persons, excluding sole proprietors, are exempt from provisional tax:
Body corporates, deceased estates, PBO’s, recreational clubs, shareblocks and small business funding entities are exempt from provisional tax.
How do you calculate Provisional Tax?
The estimate of taxable income may not be less than the basic amount without the consent of SARS.
A two-tier system applies depending on the taxpayer’s taxable income:
What if your calculation is incorrect?
If the above requirements are not met, a penalty of 20% is levied on the difference between the estimated tax and 90% of the actual tax (where the taxable income is R1 million or less), or 80% of the actual tax (where the taxable income exceeds R1 million), less the PAYE and provisional tax paid in the year of assessment.
The penalty may be waived if the taxpayer can prove that due care has been taken in seriously calculating the estimate.
Where the return is not submitted within four months of the due date, the estimate of taxable income is deemed to be nil.
When should you pay?
Remember that, by submitting the return and payment timeously and accurately, you can ensure a hassle-free, smooth submission. Insufficient payment and/or underestimation of taxable income may lead to you being charged with penalties and interest. We strongly recommend you enlist the services of a professional tax practitioner to ensure your estimations are correct.