Provisional Tax (Part1)

By BVK Group | 05 Feb 2024

Provisional Tax: Are You Ready for the Crucial 29 February Deadline? – PART 1

“Provisional tax is merely a mechanism to pay the normal income tax liability during the tax year… an advance payment of a taxpayer’s normal tax liability.” (SARS)

To provisional taxpayers, especially those who are liable for provisional tax in both their personal capacities and as business owners, it may well seem that there are endless provisional tax deadlines and payments to be made every year.

There are indeed numerous income tax provisional and final declarations and payments that overlap across tax years, which is certainly confusing, and yet non-compliance is met with some of the harshest penalties imposed by SARS, most notably in respect of the second provisional tax declaration and payment, due by the end of February for individuals, and for companies with a February financial year end.

In this article we find out who are provisional taxpayers, what they need to pay and when and how to avoid the penalties for non-compliance.  

What is provisional tax?

• Provisional tax is not a type of tax, but a cash flow mechanism to collect pre-payments of taxes that must be made in respect of individual provisional taxpayers’ and company taxpayers’ normal annual income tax prior to a final determination of the annual tax liability.

• At least two amounts are paid in advance during the year of assessment, based on estimated taxable income for the year of assessment. A third optional payment can be made.

Why must provisional tax be paid?

• Ensures government collects cash more evenly during the year and not just in bulk amounts following final tax assessments which are annual and usually in similar time periods e.g. end of December or February.

• Spreads the payment of a taxpayer’s year’s income tax liability over two or even three provisional payments.

• Prevents taxpayers facing large income tax liabilities that are only revealed at the end of the year of assessment when the annual personal income tax (PIT) return ITR12 or the annual corporate income tax (CIT) return ITR14 is filed.

• The first, second and third provisional payments are credited against any tax owing after the final income tax return is filed, and any further tax liability will then become due.

• Reduces the risk and amount of interest accruing between the time when a tax liability is determined and when it is paid.

Who must pay provisional tax?

• Provisional tax is paid by individuals who earn income other than, or in addition to, a salary or traditional remuneration paid by an employer from which PAYE deductions are made - including those who earn income from conducting a business, such as members of CCs, sole proprietors and company owners.

• Companies and trusts.

• Any person notified by the Commissioner of SARS.

• Exceptions and thresholds apply in every instance, so be sure to check with your accountant

When is provisional tax due?

Below is an example of the provisional and final income tax due dates for:

• The 2024 year of assessment (1/03/23-29/02/24) and

• The 2025 year of assessment (1/03/24-28/02/25)

for a company with a February financial year (FY) end.

It shows how the due dates for different years of assessments overlap to create both seemingly endless provisional tax deadlines and much confusion.

The company provisional tax due dates shown in the table above are the same for individual provisional taxpayers, but individuals who are provisional taxpayers will be due to file their annual personal income tax (PIT) returns in January at the end of the tax season as announced by SARS.          

Part Two (2)