To understand how provisional tax must be submitted we need to understand why provisional tax must be submitted.
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What is provisional tax?
Provisional tax is a pre-payment of your estimated tax liability for the year. This is a mechanism from SARS to keep their constant feed of income tax receivable going, just like PAYE is done monthly.
All companies are registered provisional taxpayers, however only the following natural persons are regarded as provisional taxpayers:
- Any person who derives income by way of any remuneration from an employer that is not registered in terms of paragraph 15 of the 4th Schedule, or
- Any person who derives income by way of any amount which does not constitute remuneration or an allowance or advance contemplated in section 8(1) of the Income Tax Act.
- Any person who is notified by the commissioner that he or she is a provisional taxpayer.
Who needs to register as a provisional taxpayer?
In laymen’s terms the following people needs to be registered as provisional taxpayers:
- All people who carry on a business
- All people who receive income in the form of interest, dividends, foreign dividends, rental from the letting of fixed property and any remuneration from an employer that is not registered in terms of paragraph 15 of the 4thSchedule, unless the total does not exceed R30,000 for the year.
Provisional tax payments are separated into two compulsory payments and one non-compulsory third payment. The first payment is due 6 months after the start of the financial year, the second one is due before the end of the financial year and the third non-compulsory payment is due 6 months after year end for companies and 7 months after year end for individuals. The third payment is only a prevention of interest being calculated on tax due that was not paid during the first two provisional tax payments.
First provisional tax return (Par 19 of the 4th Schedule)
SARS will issue an IRP6 return with a basic amount of taxable income that is based on the latest assessment of previous tax returns. If the previous tax return is older than 18 months, SARS will increase the basic amount by 8% per annum.
Your provisional tax calculation may not be less than the basic amount calculated by SARS unless you can justify the lower amount. As your calculation can’t be lower than the basic amount of SARS no penalties exist for underpayment of provisional tax for the first period, however there will be a 10% penalty for the late submission and payment of the provisional tax if you have missed the deadline.
If SARS has issued an IRP6 with a basic amount based on an old assessment and the latest assessment of taxable income has been issued, it may be used by the tax payer as the basic amount if that assessment was issued more than 14 days prior to the deadline of the provisional tax payment.