Provisional Tax in South Africa: What You Need to Know
Provisional tax is an important part of the South African income tax system, particularly for businesses, companies, trusts and individuals who receive income that is not fully subject to PAYE.
Despite its name, provisional tax is not a separate tax. It is a method of paying income tax during the year of assessment rather than waiting for the final income tax assessment. The payments are based on estimated taxable income and are ultimately taken into account when SARS determines the final income tax liability.
Who may be a provisional taxpayer?
Companies and trusts generally fall within the provisional tax system, while individuals may become provisional taxpayers depending on the nature and amount of their income.
For individuals, this can arise where income is earned from sources other than ordinary remuneration subject to PAYE, such as business, rental or certain investment income. Specific exclusions and thresholds apply, so receiving additional income does not automatically mean that every individual will have a provisional tax liability.
When is provisional tax due?
There are generally two compulsory provisional tax periods:
First provisional period — six months after the beginning of the year of assessment.
Second provisional period — at the end of the year of assessment.
For individuals with a February tax year-end, these periods ordinarily fall at the end of August and February respectively. Companies follow the same six-month and financial-year-end principles based on their own financial year-end.
A third or “top-up” payment may also be made after year-end where appropriate. This is not another tax return period in the same sense as the first two periods; it is generally used to address an anticipated shortfall and potentially reduce interest exposure.
Why does the calculation matter?
Provisional tax is based on estimated taxable income, rather than simply the turnover or cash received during the period.
A proper calculation may therefore require consideration of income, allowable expenditure, accounting results, tax adjustments and other relevant information for the year.
Simply submitting an arbitrary estimate can create problems later. SARS specifically cautions that insufficient payment or underestimation of taxable income may result in penalties and interest.
What information may be required?
The information required depends on the taxpayer and the circumstances. For a business, this may include up-to-date accounting records, income and expenditure information, management accounts and previous tax information.
Where the financial year has not yet been completed, the available results may need to be considered together with expected income and expenditure for the remainder of the year.
Do you still need to submit if there is no tax payable?
A nil payment does not necessarily mean that the provisional tax obligation can simply be ignored. SARS states that provisional taxpayers are required to submit the applicable first and second IRP6 returns even where the calculation results in no provisional tax being payable.
Need assistance with provisional tax?
MVA Tax and Corporate Advisory assists individuals, companies and trusts with provisional tax calculations, supporting accounting information and IRP6 submissions.
Because the correct treatment depends on the taxpayer’s particular circumstances, the calculation should be considered using the relevant financial and tax information rather than relying on a general estimate.
Contact MVA for assistance with your provisional tax calculation and submission.