HDI Guide to Provisional Tax
Provisional tax is not a separate type of tax but is simply a way to pay your taxes upfront during the tax year, in a similar way salaried employees have to pay PAYE which employers deduct and pay over to SARS monthly. Provisional tax is paid by individuals who earn income other than a salary paid by an employer. This is because they do not pay tax via PAYE, like salaried employees.
Who is provisional tax for?
If you earn any of the following income greater than R 30 000 per year and your total taxable income is greater than the tax threshold, then you will be a provisional taxpayer: Rental Income, Interest and Investment Income, Business Income, Capital Gains etc. Provisional tax is also payable by all companies which automatically fall into the provisional tax system. A provisional taxpayer is defined in paragraph 1 of the Fourth Schedule of the Income Tax Act, No.58 of 1962.
When do I have to submit and pay provisional tax?
Provisional taxpayers are required to submit provisional tax returns also known as IRP6’s twice a year, the first provisional return needs to be submitted 6 months into the financial year and the second provisional return needs to be submitted at financial year end. There is also an optional third provisional return, also know as a top-up return. If you are an individual provisional taxpayer or a corporate taxpayer with a 28 February year end, your first provisional return will be due by 31 August 2022 and the second by 28 February 2023.
What happens if I am supposed to file a provisional return but don’t?
We are talking about SARS and tax here so, yip you guessed it – interest & penalties!! … and to make things even worse there is no longer a registration or de-registration process to be a provisional taxpayer. The onus is on the taxpayer to determine if he or she is liable for provisional tax, and to request and submit an IRP6 return via eFiling.
What penalties do provisional taxpayers face and how to avoid them
- Late Payment Penalty
If you file your provisional tax return and pay after the deadline SARS will automatically raise a 10% penalty on the balance due and also raise interest at the prescribed rate which is linked to prime.
- Under-Estimation Penalty
SARS expects you to accurately calculate your estimate, there is however some parameters your estimate can fall within to be safe. To prevent taxpayers from reporting lower numbers or incorrect numbers SARS imposes hefty penalties for understatement. This penalty is calculated at 20% of the difference between the normal tax payable for your estimate and tax you should have paid on your actual taxable income.
- Late Submission Penalty
SARS does not take late submissions of tax returns and/or payments lightly! Even one day late is considered late enough to make you pay a penalty. If you miss the deadline or do not file at all SARS will consider you submitted a NIL return and this will result in a 20% under-estimation penalty being imposed.
Reversal of Provisional Tax Penalties – Is it possible?
These penalties may seem harsh, but they exist to discourage taxpayers from deliberately underpaying their tax or postponing paying it so it is extremely hard to object and get these reversed. If you have a genuine reason for paying or submitting late, and you can provide detailed evidence to back it up then it is possible to get SARS to reverse your penalty – or at least part of it.
We know it is painful and time consuming but it is very necessary to do your provisional return accurately if you do not want to be lumped with penalties and placed in SARS bad books ….. and believe it or not there is actually such a thing! Repeat offenders get less leniency from SARS when it comes to disputes and objections!
If you need assistance with any of your tax compliance, contact us.
HDI Accounting and Taxation
Telephone: 031 563 1259
Email: info@hdigroup.co.za
Address: 7 Canford Park, 53 Anthony Road, Durban North
Photo by Nataliya Vaitkevich: Pexels
By HDI Group
HDI Auditing Incorporated | HDI Accounting and Taxation Incorporated
