Provisional tax applies to all taxpayers who receive non-salaried income or realise capital gains during the relevant year of assessment. Every provisional taxpayer must submit provisional tax returns reflecting the taxpayer’s total estimated taxable income for the year. The provisional tax system is not a separate tax from income tax but is rather simply a mechanism that allows the tax liability to spread over the relevant year of assessment. Upon assessment, the provisional tax payments will be offset against the normal tax liability.
Provisional tax returns (and payments, if applicable) are due twice within a tax year. The first provisional tax return is due within the first six months of the commencement of the tax year (for individuals, this is 30 August 2024), and the second at the end of the tax year (28 February 2025). There is also the option of a third voluntary payment after the tax year (for individuals this can be submitted before the last business day of September) should an amount be outstanding before a person’s tax return is submitted.
With the first provisional filing deadline approaching, it is important to be made aware of the potential penalties that may arise due to inaccurate provisional tax submissions. For the first period, there is no underestimation penalty (i.e., where your taxable income is underestimated). However, a late payment penalty of 10% of the total tax amount payable will apply where payment is not made by 30 August 2024. It is, therefore, important to ensure that you make provision for your bank’s cut-off times and a clearance period that could take two to five days.
An underestimation penalty is levied when a taxpayer’s actual taxable income is more than the taxable estimate submitted on the second provisional tax return. Such penalty amount depends on whether the taxpayer’s actual taxable income is more (or less) than R1 million. For taxable income of R1 million or less, an underestimation penalty will apply if the estimated taxable income is less than 90% of actual taxable income; and the basic amount applicable to the second period. For taxable income of more than R1 million, an underestimation penalty will apply if the estimated taxable income is less than 80% of actual taxable income.
In the event of a penalty, we recommend that you consult with your tax advisor as, depending on the circumstances, the provisional tax penalties may be remitted.