What is provisional tax?
Provisional tax is a mechanism for the fiscus to collect tax on a bi-annual basis.
Who is a provisional taxpayer?
Most salary earners are non-provisional taxpayers, provided they have no other sources of income. Importantly, receiving exempt income such as dividends would not make a person a provisional taxpayer.
Apart from individuals, all companies and persons notified by the Commissioner will be provisional taxpayers.
There are a number of persons that are excluded from being provisional taxpayers, which, amongst others, include small business funding entities, certain public benefit organisations, and deceased estates.
What does it mean to be a provisional taxpayer?
Provisional taxpayers are required to submit provisional tax returns bi-annually, halfway through the tax year and again on the last day thereof. In these returns, provisional taxpayers are required to estimate their taxable income for the year of assessment and accordingly pay provisional tax on the estimated amount. An accurate estimate is important as an incorrectly calculated estimate may result in an underestimation penalty.
Late payment penalties are also applied if the estimated tax is not paid to SARS on time (with the due dates being the same as the provisional tax returns).
On assessment, the provisional tax payments are set off against the taxpayer’s normal tax liability, which can either result in payment due to SARS or a refund to the taxpayer.
It is important for all provisional taxpayers to be aware of the provisional tax obligations and ensure that these are adhered to in order to prevent late payment and underestimation penalties.