August and February are provisional tax months and everywhere we go we are bombarded with SARS advertising campaigns reminding you to submit your provisional tax return on time. These campaigns run by SARS are usually a very effective reminder for the majority of taxpayers to keep our taxes up to date. Then there are those that break out in a cold sweat, thinking : “I have no clue what provisional tax is and if I even have to pay it”. No need to wonder anymore – just keep reading…
What Is Provisional Tax?
None of us likes paying tax, but provisional tax is actually a blessing in disguise. All taxpayers have to submit their tax returns annually. The last thing you want is to be blindsided by a hefty amount that needs to be paid to SARS for profits that are long forgotten. This is even more relevant for taxpayers that do not earn regular income. Why not rather make use of the provisional tax system and make a tax payment every six months that will be deducted off your final tax liability when you submit your tax return? You can even make a voluntary third payment if the 1st two payments weren’t sufficient, thereby minimizing your chances of incurring SARS penalties.
This makes it much easier to stay on top of your tax obligations. As opposed to perhaps finding yourself in a situation where one large tax payment is not possible due to a number of reasons such as cash flow difficulties.
I’m also making this sound as if it is a convenient choice you can exercise whenever you need to. 🙂 It would be wise to talk to a professional as this becomes mandatory in some cases dependent on how your earn your income.
Who Qualifies To Submit And Pay Provisional Tax?
- If you earn an income that is not from remuneration (i.e. a salary) or an allowance or advance. OR
- If you have a company that is not a public benefit organisation or a recreational club. OR
- If you have been notified by SARS that you are a provisional taxpayer.
Answering yes to any of the above points mean that you may be required to pay provisional tax. If you answered yes to the third point, you are required to register as soon as possible.
Members of close corporations and directors of companies, are automatically included in the provisional tax system.
For individual tax payers, provisional tax is paid by people who earn income other than a salary. Income that are not salary of nature would include rental income from property, interest income from your investments or income derived from operating your own business.
It is important to note that when you earn income not from a normal salary, you are only required to register and pay provisional tax if your income exceeds the tax thresholds for that year. In the 2023/24 tax year for example, if you are under the age of 65 and earn less than R95,750 per year or are over the age of 65 and earn less than R117,300, then you are not required to register.
If you just earn a salary then you are a regular taxpayer and don’t have to worry about filing provisional tax returns!
When Do I Have To Submit My Returns And Payment?
One payment by end of August (mid tax season)
A second payment by end of February (end of tax season)
*Optional* third payment at end of September (seven months after season closes). ONLY if amount paid in previous payments was insufficient.
|Taxable income (R)||Provisional tax rate (%)|
|1 – 216 200||18|
|216 201 – 337 800||26|
|337 801 – 467 500||31|
|467 501 – 613 600||36|
|613 601 – 782 200||39|
|782 201 – 1 656 600||41|
|1 656 601 and above||45|
How Does Provisional Tax Work?
Normal salaried taxpayers pay their annual taxes via the monthly PAYE deducted off their paycheck and is paid over to SARS by their employers.
Since provisional taxpayers earn money from other sources, the PAYE that is deducted off their salaries – or in the case of business owners where there might be no PAYE deducted – might not be sufficient to cover the total tax liability for the year. Provisional tax subsequently requires that you estimate your income for the year of assessment. Once you have calculated the total tax that you will owe SARS for the year, you will pay half of the tax in the first six months of the assessment year (i.e. before 31 August) and the final half no later than the last day of the assessment year (i.e. before 28/29 February).
The tax paid from the first and second payments is then credited against any tax owing at the end of tax season. This will be refunded by SARS if too much was paid.
Please note that these are just the provisional tax rates. Your actual tax liability will depend on a number of factors, such as your deductible expenses and tax credits.
The calculation is based on your estimated taxable income for the current tax year. You can use the following formula to calculate your provisional tax:
Provisional tax = Estimated taxable income for the current tax year * Provisional tax rate
For example, if your estimated taxable income for the 2023-2024 tax year is R350 000, your provisional tax would be calculated as follows:
Provisional tax = R350 000 * 26% = R91 000
Should I Use A Professional Accountant?
Provisional Tax can be submitted via the eFiling portal by yourself. In light of the below mentioned we strongly consider that you make use of the services of a professional person to facilitate this process on your behalf.
These provisional tax payments are estimations only. In light of the fact that SARS compares them to your income tax at the end of the financial year, it is of the utmost importance to make these provisional tax estimations as accurate as possible to avoid penalties and interest imposed by SARS. Professional Accountants have a thorough knowledge of the South African tax system which means that they can provide guidance with respect to business expenses that you can and cannot claim for. This ensures your returns are submitted accurately and on time, affording you the time to focus on growing your business.