Provisional Tax (Part2)
By BVK Group | 05 Feb 2024
Provisional Tax: Are You Ready for the Crucial 29 February Deadline? – PART 2
How much are the provisional tax payments?
Individual provisional taxpayers
During every period, individual provisional taxpayers must submit an estimate of their total taxable income in the year of assessment, excluding any retirement fund lump sum or withdrawal benefit or any severance benefit. The taxpayer’s estimate must be informed by a reasonable calculation.
The taxable portion of the aggregate capital gain for the current year of assessment must be included.
The estimate may not be less than the ‘basic amount’ which is the taxpayer’s taxable income assessed for the preceding year of assessment, less any taxable capital gain; the taxable portion of a retirement fund lump sum or withdrawal benefit or severance benefit, and other amounts specified by SARS, unless SARS approves a lesser amount. SARS can still adjust an estimate upwards that is more than the basic amount but less than a reasonably calculated amount.
The calculations provided by SARS below show why professional assistance is optimal
| R |
Estimated taxable income for the year of assessment | XXXX |
Normal tax on estimated taxable income | XXXX |
Less: Primary, secondary and tertiary rebates under section 6 | (XXXX) |
Less: Tax credit for medical scheme fees under section 6A | (XXXX) |
Less: Additional medical expenses tax credit under section 6B | (XXXX) |
Total Tax Payable (A) | XXXX |
Half of the normal tax payable on estimated table income (A/2) | XX |
Less: Employees' tax deducted from the provisional taxpayer's remuneration during the first period | (X) |
Less: Foreign tax credits under section 6quat proved to be payable by the end of the first period. | (X) |
FIRST PROVISIONAL TAX PAYMENT | (XXXX) |
| R |
Estimated taxable income for the year of assessment | XXXX |
Normal tax on estimated taxable income | XXXX |
Less: Primary, secondary and tertiary rebates under section 6 | (XXXX) |
Less: Tax credit for medical scheme fees under section 6A | (XXXX) |
Less: Additional medical expenses tax credit under section 6B | (XXXX) |
Total Tax Payable | XXXX |
Less: Employees' tax deducted from the provisional taxpayer's remuneration during the year | (X) |
Less: First provisional tax payment (if actually paid) | (X) |
Less: Foreign tax credits (section 6quat) for the year | (X) |
SECOND PROVISIONAL TAX PAYMENT | XXXX |
| R |
Estimated/actual taxable income for the year of assessment | XXXX |
Normal tax on estimated taxable income | XXXX |
Less: Primary, secondary and tertiary rebates under section 6 | (XXXX) |
Less: Tax credit for medical scheme fees under section 6A | (XXXX) |
Less: Additional medical expenses tax credit under section 6B | (XXXX) |
Total Tax Payable | XXXX |
Less: Employees' tax deducted from the provisional taxpayer's remuneration during the year | (X) |
Less: First provisional tax payment (if actually paid) | (X) |
Less: Second provisional tax payment (if actually paid) | (X) |
Less: Other provisional tax top-up payments (if any, if actually paid) | (X) |
Less: Foreign tax credits (section 6quat) | (X) |
TOP-UP PAYMENT | XXXX |
Company provisional taxpayers
Company provisional taxpayers must submit a return of an estimate of the total taxable income for the year of assessment.
It cannot be less than the basic amount, which is the taxpayer’s taxable income assessed for the latest preceding year of assessment, less the amount of any taxable capital gain in that year of assessment.
The basic amount for all taxpayers must be increased by 8% if the estimate is made more than 18 months after the end of the latest preceding year of assessment.
The calculations provided by SARS below reveal why the assistance of your accountant is invaluable.
| R |
Estimated taxable income for the year of assessment | XXXX |
Normal tax on estimated taxable income (A) | XXXX |
Half of the normal tax payable on estimated taxable income (A/2) | XX |
Less: Employees' tax deducted from the provisional taxpayer's remuneration during the first period | (X) |
Less: Foreign tax credits under section 6quat proved to be | (X) |
FIRST PROVISIONAL TAX PAYMENT | XXXX |
| R |
Estimated taxable income for the year of assessment | XXXX |
Normal tax on estimated taxable income | XXXX |
Less: Employees' tax deducted from the provisional taxpayer's remuneration during the year | (X) |
Less: First provisional tax payment (if actually paid) | (X) |
Less: Foreign tax credits (section 6quat) for the year | (X) |
SECOND PROVISIONAL TAX PAYMENT | XXXX |
| R |
Estimated/actual taxable income for the year of assessment | XXXX |
Normal tax on estimated/actual taxable income (taxable income x28%) | XXXX |
Less: First provisional tax payment (if actually paid) | (X) |
Less: Second provisional tax payment (if actually paid) | (X) |
Less: Other provisional tax top-up payment (if any, if actually paid) | (X) |
TOP-UP PAYMENT | XXXX |
Top tips
SARS can ask for the estimate to be justified and can increase the estimate if they are dissatisfied with the amount, and this is not subject to an objection or appeal.
SARS provides the following advice: ‘the calculation must be one which has been carefully considered and is thoughtful, earnest and sincere…” and the amount of the estimate must be determined “sensibly and by careful reasoning and judgment, in a mathematical manner, and using experience, common sense and all available information”.
Keep accurate records of all the calculations and source documents used.
How is provisional tax declared and paid?
A provisional return or IRP6 return must be submitted by all provisional taxpayers for the first and second periods.
Even if you or your company owes no tax, a 'nil' return showing taxable income is equal to zero must still be filed on time.
If an IRP6 is filed more than four months after the deadline, SARS considers a 'nil' return to have been submitted - unless the actual taxable income is really zero, this will result in penalties.
What are the penalties for non-compliance?
A 10% penalty will be levied on late payments, along with interest at the prescribed rate.
Harsh penalties for under-estimation are levied when the actual taxable income is more than the taxable income estimated on the second provisional tax return. The penalty amount depends on whether the actual taxable income is more or less than R1 million.
Where taxable income is more than R1 million - if the taxable income estimate for the second provisional tax payment is less than 80% of actual taxable income declared on the annual tax return, a 20% penalty will be levied on the difference between: the amount of tax payable on 80% of actual taxable income after taking into account rebates, and employees’ tax and provisional tax already paid.
Where taxable income is less than R1 million - if the taxable income estimate for the second provisional tax payment is less than 90% of actual taxable income, and is also less than the basic amount, a penalty is levied of 20% of the difference between: employees’ tax and provisional tax paid in the year of assessment, and the lesser of (a) the normal tax payable on 90% of actual taxable income (after deductible rebates) or (b) the normal tax payable for the year of assessment on the basic amount.
Interest at the prescribed rate (7.75% pa subject to change) will also be levied on the underpayment of provisional tax as a result of under estimation.
Rely on tax expertise
Provisional taxpayers, whether individuals or companies, should consider relying on the expertise of their accountant to assist them in preparing and/or reviewing their provisional tax and income tax returns prior to submission. Similarly, where penalties and interest have already been imposed and levied, taxpayers may need expert assistance to successfully make a request for the remission of such penalties and interest to SARS.
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