BNT Guide to Provisional Tax

Understanding Provisional Tax: What You Need to Know

Provisional tax is not a separate type of tax but a way to pay your taxes upfront during the tax year, similar to how salaried employees pay PAYE, which employers deduct and remit to SARS monthly. Provisional tax applies to individuals who earn income beyond a regular salary, as they do not pay tax via PAYE like salaried employees.

Who Needs to Pay Provisional Tax?

You will be classified as a provisional taxpayer if you earn any of the following types of income exceeding R30,000 per year and your total taxable income is above the tax threshold:

Rental Income
Interest and Investment Income
Business Income
Capital Gains

Additionally, all companies automatically fall into the provisional tax system. According to paragraph 1 of the Fourth Schedule of the Income Tax Act, No. 58 of 1962, these individuals and entities are required to pay provisional tax.

Provisional Tax Submission and Payment Deadlines

Provisional taxpayers must submit provisional tax returns, known as IRP6s, twice a year. The first return is due six months into the financial year, and the second at the financial year-end. There is also an optional third "top-up" return. For individuals and corporate taxpayers with a 28 February year-end, the first return is due by 31 August, and the second by 28 February.

Consequences of Not Filing a Provisional Tax Return

Failing to file a provisional tax return can lead to interest and penalties. Unlike regular tax filing, there is no registration or deregistration process for provisional taxpayers. It is the taxpayer's responsibility to determine their liability and submit an IRP6 return via eFiling.

Penalties for Provisional Taxpayers and How to Avoid Them

Late Payment Penalty: Filing your provisional tax return and paying after the deadline results in a 10% penalty on the balance due and interest at the prescribed rate.

Under-Estimation Penalty: If you under-estimate your tax liability, SARS imposes a penalty of 20% on the difference between your estimate and the actual tax due.

Late Submission Penalty: Missing the deadline or not filing at all results in a 20% under-estimation penalty, as SARS considers it a NIL return.

Reversing Provisional Tax Penalties

Although these penalties are strict to discourage underpayment or delayed payment, they can sometimes be reversed. If you have a valid reason for late payment or submission and provide detailed evidence, SARS may consider reversing the penalty.

Accurately completing your provisional tax return is crucial to avoid penalties and maintain good standing with SARS. Repeat offenders face harsher scrutiny and fewer leniencies regarding disputes and objections.

By understanding and adhering to provisional tax requirements, you can ensure compliance and avoid unnecessary penalties.