Provisional tax is a method for collecting taxes on a bi-annual basis. It allows for a more consistent cash flow for the Government and helps businesses by not levying a large tax bill at the end of their financial year but instead splitting it across the financial year. The second provisional tax return is due on 29 February 2024. It is essential that this return is completed accurately, and payment made timeously. If not, it could result in penalties being levied on you, the taxpayer.
Depending on the amount of taxable income, an underestimation penalty is generally levied as 20% of the difference between:
- The amount of normal tax payable on 80% of the actual taxable income, after taking into account a rebate deductible in the determination of normal tax payable; and
- the total amount of tax paid by the taxpayer by the end of the year of assessment.
A late payment penalty of 10% can also be levied if payment is not reflected by the due date. Therefore, taxpayers must take all the necessary steps timeously and carefully to avoid the imposition of penalties.
It is sometimes difficult or impossible for taxpayers to correctly estimate their income due to the uncertainty of their business or the complexity of calculating accurate estimates. Unforeseen circumstances and situations can also play a role in underestimating a taxpayer’s income. In these situations, there are specific mechanisms to request that penalties be remitted, which usually involves the taxpayer indicating that they were not unreasonable when calculating the estimate. It is, therefore, crucial to keep a record of the calculations performed to reach the relevant estimate.
In the event of provisional tax penalties, you should consult a tax advisor to consider whether you qualify for remission of the penalties.