The provisional tax system applies to all companies and taxpayers who receive non-salaried income or realised capital gains if certain thresholds are met during the relevant year of assessment. This generally includes freelancers, sole proprietors, independent contractors, taxpayers who earn rental property income or substantial interest, and employees who work for employers who do not deduct PAYE from their salaries.
Provisional tax is not a separate tax from income tax. It is designed to ensure that taxpayers, who receive income other than salaries or remuneration, do not end up with a large tax debt on assessment when they submit their annual tax returns. In other words, it is a mechanism that allows the tax liability to be spread over the relevant year of assessment. Upon assessment, provisional tax payments will be off-set against the normal tax liability.
Every taxpayer who qualifies as a provisional taxpayer is required to accurately calculate and submit a compulsory provisional tax return reflecting the taxpayer’s total estimated taxable income for the relevant year. Provisional tax returns must be submitted, and related payments made twice a year, on 31 August and 28 February (based on a February financial year-end). A third payment is optional and must be made within seven months after the end of the year of assessment.
Taxpayers may face penalties and interest if these estimates and payments are not submitted timeously and/or accurately. Therefore, it is important that taxpayers determine their current and future tax positions by continuously planning and maintaining their tax affairs.
The first provisional tax return and related payment for the 2024 year of assessment (1 March 2023 to 28 February 2024) is due by Thursday, 31 August 2023. To avoid late-payment penalties and interest, ensure that you make provision for your bank’s cut-off times and for a clearance period that could take between two and five days, where payments are made electronically (i.e. via eFiling or EFT).