What is provisional tax?
The South African Revenue Service (SARS) explains that provisional tax is not a separate form of tax. It is a method of paying one’s income tax liability in advance. It requires the taxpayer to pay two amounts in advance of filing the tax return (each due in August and February), which are based on the person’s estimated taxable income.
Most income in SA is employment income (salaries). The employer is obliged to withhold Pay-As-You Earn and pay it over to SARS. However, the problem arises with other sources of income such as rental, interest, dividends, where people have more than employer or such persons are conducting a trade.
Provisional tax is a way for SARS to collect tax on those income streams earlier, rather than having to wait until taxpayers file their return at the end of the tax period.
When do
I have to pay it?
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.
One payment by end of August (mid tax season) with a second payment by end of February (end of tax season).
SARS wants provisional taxpayers to have an even cash flow and avoid paying one large (potentially crippling) chunk of tax in February, so they ask that two (or optionally three) payments are made during the tax year at the end of August and end of February, with an IRP6 required for each one. The tax paid from the first and second payments is then credited against any tax owing at the end of tax season, and can be refunded by SARS if too much was paid.
Provisional taxpayers also need to submit an ITR12 tax return (just like regular taxpayers), except the due date for this is 31 January the following year (11 months after the tax season closed).
Our Advice
Business Evolution advises clients to start collecting paperwork throughout the year, as you need to evidence every rand of income earned and especially every expense incurred. For persons with offshore income, you need to also evidence any tax paid offshore. SARS will take foreign tax into account when determining the income tax liability.
Evidence includes rental or supplier agreements, invoices sent to tenants or service providers, bank statements, obtaining tax certificates from financial institutions for any interest, dividend income or capital gains, tax certificates for retirement annuity and pension fund contributions medical aid scheme contributions during the tax period, as well as logbooks for travel allowance claims.
It is crucial to keep evidence of expenses and the proof of payment. Bank statements are definitive proof of what you have paid and what you have received.
Please note that making a late provisional tax payment will result in penalties and interest being levied on the amount. It will only be waived if the taxpayer can prove it was the first incidence of non-compliance or the late payment was due to extraordinary circumstances.