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PROVISIONAL TAX
YOU could be liable
Posted Sat, 04 Nov 2000

Provisional tax forms part of the PAYE tax collection system. It is there to assist taxpayers to meet their annual tax commitment, by allowing for the payment of tax in installments, rather than in one fell swoop on assessment.

Who qualifies to be a provisional taxpayer?
The following categories of individuals qualify as provisional taxpayers:

  • all persons receiving income from sources other than remuneration i.e. salaries. This includes:
    • individuals with income from investments, which exceeds R2 000 or
    • individuals who receive business, farming or rental income.
  • Directors of private companies (unless the Commissioner for the South African Revenue Services directs otherwise)
  • Members of close corporations, if ordinarily resident in South Africa (unless the Commissioner directs otherwise)
  • Persons who are notified by the Commissioner that they are provisional tax payers
Any individual who becomes liable for the payment of provisional tax must register as a provisional taxpayer within 30 days from the date of becoming a provisional taxpayer.

Who is exempt from the payment of provisional tax?
These are:

  • taxpayers who derive their income solely from remuneration
  • taxpayers whose investment income is less than R1 000 during the year of assessment
  • Taxpayers who are 65 years or older and whose taxable income for the year of assessment does not exceed R50 000. Income for such an individual:
    • may not be derived from carrying on any business and
    • must only be derived as remuneration, pension, interest, or rental from the letting of fixed property.
An individual who is exempt from the payment of provisional tax may still be liable for normal tax and must complete the annual income tax return.

Rules for provisional tax payments:

  • Provisional taxpayers are required to make three provisional tax payments in each tax year. These payments are payable as follows:
    • the first payment is payable six months after the beginning of the tax year and must equal one half of the total estimated normal tax liability for the year.

      The estimate of taxable income for the first payment may not, unless the SARS agrees to a lower estimate, be less than the taxable income for the preceding tax year, in respect of which an assessment has been issued.

    • The second payment is payable on or before the last day of the tax year. The amount payable must equal the total estimated tax liability for the year, less the amount previously paid (see above). The taxpayer may base the second payment on the latest tax assessment received even if the taxable income for that year is expected to be greater.

      If the estimate of taxable income for the purposes of this payment is less than 90% of the taxable income ultimately assessed, and is also less than the taxable income for the latest preceding tax year in respect of which an assessment has been issued, a penalty of 20% of the amount underpaid, as well as interest at the rate of 13% per annum, will be payable. The penalty and interest are not deductible for tax purposes.

    • The third payment, which is a voluntary payment, is payable within seven months after the end of the tax year. Most individual taxpayers have a February year end for this purpose and may make the third payment within seven months after the end of the tax year i.e. on or before 30 September of each year.

      The taxpayer should estimate the taxable income for the tax year and pay over an amount equal to the total estimated tax liability for the year, less the amounts paid as set out above. Non-deductible interest at the rate of 13% per annum will be payable if the estimate is less than the actual tax as finally assessed and the taxable income exceeds R50 000.

    If the amount paid is still insufficient to cover the liability, interest can be minimised if the taxpayer makes further "topping-up" payments between the date of the third provisional payment and the date of the assessment.

    If provisional payments exceed the liability as finally assessed, taxable interest at the rate of 9% per annum is payable to the taxpayer if taxable income exceeds R50 000, or if the tax refundable exceeds R10 000. Any excess tax will be refunded.

    Where the taxpayer can show that the amount of the estimate was not deliberately or negligently understated and was seriously calculated, the penalty may be remitted. Similarly, any interest payable may be reduced if the taxpayer can show that there were reasonable grounds for including any amount/claiming a deduction in calculating the estimate of taxable income.

    Forms which should be used:

  • SARS has produced various forms for provisional tax payments:
  • IRP 6 (i) – for first and second provisional tax payments
  • IRP 6(a) – for the third and further voluntary tax payments.

    Penalities for late payments & underestimates:

    1st payment 2nd
    payment    		 3rd payment
    Late payment 10% 10% -
    Underestimation
    of tax liability    		 - 20% additional tax on underpayment -

    [This article was prepared by Rodney Lewis, Senior Tax Manager, Grant Thornton Kessel Feinstein]

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