Understanding SARS Provisional Tax
Provisional tax is designed to help taxpayers settle their income tax liability in smaller amounts over the course of the tax year. Instead of facing a large payment on assessment, taxpayers can spread their tax obligations throughout the year. This helps support healthier cash flow. This system also assists the South African Revenue Service (SARS) by ensuring a more consistent collection of tax revenue.
We share how provisional tax works, who must pay it, how payments are structured, and what happens if you do not comply.
What is Provisional Tax?
Provisional tax is not a separate tax. It is simply a method of paying your income tax in advance during the year of assessment. By making periodic payments, taxpayers reduce the likelihood of a large outstanding balance when SARS issues the final assessment.
This approach is particularly relevant for individuals and entities that earn income beyond a fixed salary, where tax is not automatically deducted.
Who is Required to Pay Provisional Tax?
Provisional tax generally applies to taxpayers who earn income that is not subject to standard payroll deductions.
All Companies: Regardless of their income sources, all companies in South Africa are required to pay provisional tax.
Individuals Earning Non-Salaried Income: This includes income from business activities, rental income, interest, dividends, and other sources that are not classified as remuneration or section 8(1) allowances.
Employees of Foreign Employers: Individuals working in South Africa for a foreign employer that is not registered as an employer in South Africa are also required to pay provisional tax.
Exemptions from Provisional Tax
Not all taxpayers are required to pay provisional tax. Certain exemptions apply.
Non-Business Income Earners: Individuals who do not carry on a business and whose taxable income falls below the relevant threshold may be exempt.
Passive Income Threshold: Taxpayers whose passive taxable income, such as interest, dividends, and rental income, does not exceed R30,000 may not be classified as provisional taxpayers.
Public Benefit Organisations (PBOs): Approved PBOs are exempt from provisional tax.
Deceased Estates:
It is important to note that receiving the following exempt income does not make you a provisional taxpayer:
If you receive interest of less than R23 800 if you are under 65; or
If you receive interest of less than R34 500 if you are 65 and older or;
You receive exempt amount from a tax free savings account.
Payment Structure
Provisional tax is typically settled through two compulsory instalments each year, with an optional third payment where necessary.
First Payment: Due within six months from the start of the year of assessment. For most taxpayers, this falls on 31 August, provided it is a business day, or the last business day before that date.
Second Payment: Due on the last business day of the year of assessment, which is usually the final business day of February.
Third Payment: This payment allows taxpayers to correct any shortfall and minimise interest. It is generally due seven months after year-end where the year of assessment ends on 28 February, or six months after year-end in other cases.
Calculation of Payments
Provisional tax calculations are based on the basic amount, which refers to the taxable income assessed by SARS in the most recent year of assessment.
Adjustments may be required for items such as capital gains, lump sums, and other specific income types. Where the latest assessment is older than 18 months, SARS permits an 8% annual escalation of the basic amount.
SARS provides detailed calculation guidance in its official documents. Taxpayers should always refer to the latest SARS resources when performing these calculations.
Detailed formats of calculations are provided by SARS. Please refer to the following link: GEN-PT-01-G01-Guide-for-Provisional-Tax-External-Guide
Forms used to capture provisional tax calculations
An IRP6 return must be completed for provisional tax purposes.
The IRP6 return can be completed for all types of taxpayers:
Individuals
Trusts
Companies
A provisional taxpayer is required to request and submit a return (IRP6) for both the first and second periods, even if the provisional tax calculation results in no tax being due (R0).
Failure to submit a provisional tax return (IRP6)
If a provisional taxpayer does not submit the required IRP6 return, the Commissioner may estimate the taxpayer’s taxable income and determine the provisional tax payable. This can lead to unexpected assessments and potential penalties.
How Should Provisional Tax Be Paid?
To pay provisional tax, follow these steps:
Register for SARS eFiling: This online facility allows you to request, submit, and pay your IRP6 return. You can register once for all tax types using the client information system.
Existing eFilers: If you are already registered, simply add provisional tax to your profile to access and file your IRP6 return online.
Penalties for Non-Compliance
SARS imposes penalties for underpayment and late payment of provisional tax to ensure compliance:
Under-estimate Penalties:
For taxable income up to R1 million, penalties are based on the lesser of 90% of the actual taxable income or the basic amount.
For taxable income exceeding R1 million, penalties are based on 80% of the actual taxable income.
The penalty amount is calculated as 20% of the underpaid amount.
Late Payment Penalties: A 10% penalty is levied on the amount not paid by the due date.
Offsetting Penalties: In the second payment, late payment penalties and under-estimate penalties can be offset against each other, effectively capping the overall penalty to 20% (10% of late payment penalty and 10% of under-estimate penalty).
Practical Tips for Managing Provisional Tax
Accurate Estimates: Review all income streams carefully when preparing provisional tax calculations.
Timely Payments: Meeting deadlines helps avoid unnecessary penalties and interest.
Regular Reviews: Revisit your tax position during the year to account for changes in income.
Professional Advice: Working with a qualified tax practitioner or accountant can help ensure compliance and improve accuracy.
The Takeaway
Provisional tax plays an important role in South Africa’s tax framework, helping taxpayers manage their income tax liability more effectively while supporting SARS revenue collection.
By understanding your obligations, submitting accurate IRP6 returns, and making payments on time, you can reduce the risk of penalties and maintain a compliant tax profile.
Get in touch with Eqeight about whether you should be paying provisional tax.
