What is provisional tax?
Provisional tax is not separate from income tax but simply a mechanism to pay your taxes during the tax year instead of having a large amount due to SARS on assessment when you submit your Income Tax return. Therefore, provisional tax is an advance payment of a taxpayer's normal tax liability.
Provisional taxpayers are required to submit two provisional tax returns (IRP6) during the tax year and make the applicable payment thereon. The first provisional tax return must be submitted within the first 6 months of the year and the second provisional tax return at the end of the year of assessment. The provisional tax returns are in addition to the annual income tax return you need to submit after the tax year has passed.
When do I have to pay provisional tax?
For individuals, the first provisional is due in August (mid-tax season) and the second is due in February (end-of-tax season). An optional third payment at end of September (seven months after tax season closes), only if the amount paid in previous payments was insufficient.
What if I pay too much provisional tax?
What if I overestimate my income and pay too much? The tax that you overpaid will be refunded when you submit your final income tax return.
What if I pay too little provisional tax?
What if I underestimate my income and pay too little tax? When your final income tax return is submitted, SARS will offset the provisional tax and any PAYE paid with your total tax and you will need to pay the balance.
For the first provisional tax submission, SARS could query this and may raise an additional amount that you need to pay.
For the second provisional tax submission, SARS may charge underestimation penalties (see below).
Provisional Tax Underestimation Penalties
If your taxable income is R1 million or less for the year, SARS requires your provisional tax paid to be at least 90% of the final tax liability. An underestimation penalty of 20% will be levied between the amount paid and the 90%. For example, if your taxable income is R800,000, resulting in R224,000 tax and you paid R150,000 provisional tax. SARS will levy a penalty of R10,320 (((R224,000 x 90%)-R150,000)x20%).
If your taxable income is more than R1 million for the year, SARS requires your provisional tax paid to be at least 80% of the final tax liability. An underestimation penalty of 20% will be levied between the amount paid and the 80%. For example, if your taxable income is R2,000,000, resulting in R560,000 tax and you paid R400,000 provisional tax. SARS will levy a penalty of R9,600 (((R560,000 x 80%)-R400,000)x20%).
Late payment penalties for provisional tax
Late payments are subject to a penalty of 10% of the total tax amount payable. SARS will also add interest at their prescribed rate.
Will SARS reverse or waive a penalty on late payment of taxes? See here.