Provisional tax is not a separate type of tax but pre-payments on income tax for a specific tax year. The aim of provisional tax payments is to help taxpayers to fulfil their tax responsibilities by spreading tax payments over a tax year. After SARS has assessed a taxpayer for income tax, the provisional tax payments will be set off against the final liability for income tax for a specific tax year.
Underpayment of provisional tax
If a taxpayer did not pay enough provisional tax during the tax year and there is a liability after offsetting provisional tax against income tax due on assessment, the taxpayer will be liable for penalties and interest on underpayment of provisional tax. The table below provides more information on the penalties and interest applicable to the underpayment of provisional tax.
Overpayment of provisional tax
If provisional tax was overpaid, i.e. provisional tax payments were more than the assessed income tax liability for a tax year, the excess amount will be refunded to the taxpayer with interest. Please refer to the table below for more details on overpayment of provisional tax.
Three provisional tax returns per tax year
The provisional tax return/IRP6 must be submitted two or three times per year, depending on the circumstances of the taxpayer.
The following table sets out the deadlines, penalties and interest, and calculations for the different provisional tax payments for the current tax year starting on 1 March 2015 and ending on 29 February 2016.
|Description||First provisional tax return – IRP6 (compulsory)||Second provisional tax return – IRP6 (compulsory)||Third provisional tax return – top-up payment – IRP6(3) (optional)|
|Deadline for submission and payment (if applicable) of IRP6 return||31 August 2015||29 February 2016||30 September 2016|
|Taxpayer fails to submit provisional tax return (IRP6)||SARS may estimate taxable income and amount of tax payable||N/A|
|Penalty payable by taxpayer on late payment of provisional tax||10% of amount paid late|
|Interest payable by taxpayer on late payment of provisional tax||Variable rate published in the Government Gazette from time to time|
|Penalty payable by taxpayer on under-estimated provisional tax||20% of amount under-estimated|
|Interest payable by taxpayer on under-estimated provisional tax (interest is not tax-deductable)||Variable rate published in the Government Gazette from time to time|
|Interest payable by SARS to taxpayer on over-estimate of provisional tax (interest is taxable)||Variable rate published in the Government Gazette from time to time (normally 4 percentage points less than the above interest rates)|
|SARS’ suggested guidelines for the calculation of provisional tax payments||Half of total tax on estimated taxable income for the tax year||Total tax on estimated taxable income for the tax year||Total tax on estimated taxable income for the tax year|
|Less: PAYE for the first 6 months of the tax year||Less: PAYE for full tax year (12 months)||Less: PAYE for full tax year (12 months)|
|Less: Foreign tax credits (if applicable)||Less: Foreign tax credits (if applicable)||Less: Foreign tax credits (if applicable)|
|Less: First provisional tax payment||Less: First provisional tax payment|
|Less: Second provisional tax payment|
|First provisional tax payment due (note 1)||Second provisional tax payment due (note 1)||Third provisional tax payment due|
Note 1: If there is not provisional tax due, the IRP6 return must still be submitted.
As can be seen from the above table, provisional tax payments are based on an estimate of the taxpayer’s taxable income. Therefore it is crucial to estimate taxable income and tax-deductible expenses as accurately as possible.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)