Provisional tax payments must be made by natural persons registered for provisional tax (including other registered tax payers with a February or August financial year-end) on or before 31 August each year. This means that a provisional taxpayer must, during every period, submit an estimate of their total taxable income which will be made in that year of assessment. If the taxpayer also earns a salary, the PAYE deducted during the year of assessment will be considered when calculating the estimated amount.
The South African Revenue Service (“SARS”) also allows for an additional provisional payment, which must be paid on or before 29 September each year. Furthermore, provisional taxpayers are entitled to a foreign tax credit regarding foreign taxes paid on income from a non-South African source.
It is important for taxpayers to ensure that they meet the necessary deadlines to avoid interest and penalties. Here are some of the consequences of late or the underpayment of provisional tax:
Late payment of provisional tax
Underpayment of provisional tax
- Interest at the prescribed rate on late payment;
- A penalty of 10% will be levied on any late payment regarding the first and second periods; and/or;
- SARS will consider the estimate income to be nil if four months has lapsed since the due date of the second provisional tax payment.
- A penalty up to a maximum of 20% of the underpayment may be levied by SARS;
- If the taxable income is more than R1 million, a penalty will be levied if the second period estimate is less than 80% of the actual taxable income;
- If the actual taxable income is equal or less than R1 million, a penalty will be levied if the second period estimate is below the basic amount and not within 90% of the actual taxable income for the year.
It is also necessary for a provisional taxpayer to include in their estimated taxable income capital gains that arose or will arise during the year of assessment.
All provisional taxpayers are urged to submit their tax returns correctly and on time. Should you need assistance when submitting your provisional tax returns, please feel free to contact us.