What is Provisional Tax and when is it Due?
Provisional Tax is not a different type of Tax but rather a method of advance tax collection. Taxpayers who are Provisional Taxpayers, have to submit two Provisional Tax returns in a year.
Provisional Tax helps avoid a substantial tax bill all at once when tax season starts, easing the burden on taxpayers.
Provisional Tax is intended for individuals and corporations that do not make monthly tax payments. This includes individuals who earn a salary and have their tax paid by their employer to SARS each month.
Provisional Tax is paid in 6-month intervals. The initial tax payment is due in six months, and the second payment is due at the end of the year.
The calculation involves taking the estimated tax for the full year to obtain the total estimate and then based on the provisional tax interval, half of that is paid over to SARS.
PROVISIONAL TAX DATES
The Provisional Tax periods are:
Provisional tax 1 is due 31 August each year and Provisional tax 2 is due 28 February each year for Individuals and entities with a February year end.
Important to note: Your provisional tax dates will be based on your year end if you are a company that has a year end other than February. Prov 1 is due 6 months into your year end and Prov 2 is due on your year end.
Frequently asked questions
Must I register as a provisional taxpayer
The provisional tax system requires you to register if you receive any other income other than a salary that is received from a salaried position where the employer pays over the tax on your behalf.
Any of the following incomes could cause you to be classified as a provisional taxpayer:
- Rental Income
- Investment Income including interest in excess of R30 000 per annum
- Trading income from a business
When must the Provisional tax amount be paid
The first provisional amounts due 6 months into the tax year i.e. 31 August and the second provisional is due 28 February each year.
If you wish to make a 3rd top up payment if you were short then you have until 29 September each year to make this provisional payment as long as your income tax has not been submitted yet.
What is a Provisional Tax Return
A tax return which indicates the provisional tax liability for the full year and then based on estimated taxable income indicates the provisional tax for the full year. This return will indicate to the authorities what should be collected provisionally from the taxpayer.
What is the Why do we have to submit an IRP6
Provisional Tax is split so that the revenue service has a steady flow of income and a reduction in risk of non-payment of taxes. Thus, you would pay provisional tax twice a year to ensure come tax season that the difference does not exceed 10-20% based on the accuracy limits required by SARS. Essentially provisional returns aim to match when you earn income and pay tax to avoid tax money being spent with a taxpayer then claiming poverty when tax season comes.
What is the Late Payment Penalty
Late payment penalties of 10% are levied if you miss the provisional tax deadline for the relevant year of assessment.
If the tax still goes unpaid then interest is added on top of the penalty levied. The provisional tax payment will then include tax, penalty and interest and should be calculated before payment is made to ensure the amount is correct.
Can I ignore provisional tax
You can't ignore Provisional tax. When tax season opens, and you submit your final income tax return for the year then SARS will immediately pick up whether you under or over-declared on your provisional tax. Under-declaring will immediately attract a penalty.
How is Provisional Calculated
1st Provisional - Based on an Annual Estimate which is then halved, and your tax paid to date is deducted to then arrive at the payment for the 1st provisional. Minus the employees tax already paid by the employees.
2nd Provisional - Based on the full year less the 1st provisional declaration. Minus the employees tax already paid by the employees.
The tax is based on gross income less tax paid and rebates afforded to the taxpayer.
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