As the provisional tax deadline approaches, it is crucial for South African business owners, investors, and self-employed individuals to understand their tax obligations. Provisional tax mandates that taxpayers with non-salary income make advance tax payments throughout the year, thereby avoiding a lump sum tax bill at the end of the financial year.
Danielle Luwes, Tax Director at Hobbs Sinclair Advisory, points out, “Provisional tax is not a separate tax, but rather a mechanism that allows taxpayers to pay their tax liability in advance. This system helps both taxpayers and SARS by improving cash flow management and reducing the risk of underpayment.”
Who is a Provisional Taxpayer?
Any person who receives income (or to whom income accrues) other than remuneration, is a provisional taxpayer, provided that certain requirements are met.
Most salary earners are therefore not provisional taxpayers if they have no other sources of taxable income. It is important to note that receiving exempt income, as follows, does not make you a provisional taxpayer:
If you receive interest of less than R23 800 and you are under 65; or if you receive interest of less than R34 500 and you are 65 and older; or you receive an exempt amount from a tax-free savings account.
A provisional taxpayer is defined as:
- A natural person who derives income other than remuneration, allowances or advances. This also includes individuals who receive remuneration from an employer not registered for employees’ tax (for example, an embassy is not obligated to register as an employer for employees’ tax purposes).
- A company.
- Certain Trusts.
- A person who has been notified by the Commissioner that they are a provisional taxpayer.
Common examples of provisional taxpayers include, but are not limited to:
- Freelancers, consultants, influencers, and business owners.
- Investors earning rental income, interest, dividends above the exemption threshold.
- Companies and certain trusts.
Who is Not a Provisional Taxpayer?
A person is not a provisional taxpayer if they do not conduct any business and their taxable income:
- Does not exceed the tax threshold for the tax year; or
- Will be R30 000, or less for the tax year from interest, dividends, foreign dividends, rental from the letting of fixed properties, and remuneration from an unregistered employer.
The following person/s are also not provisional taxpayers:
- Deceased estates.
- Approved public benefit organisations.
- Approved recreational clubs.
- Body corporates and share block companies.
- Small business funding entities.
- Associations approved by the Commissioner under section 30B (2).
Key Deadlines and Payment Structure
Provisional tax is payable in two mandatory instalments, with an optional third payment to avoid interest charges. The deadlines are as follows:
| Payment | Due Date | Calculation Basis |
| First Payment | 31 August (mid-financial year) | 50% of estimated taxable income. |
| Second Payment | 28/29 February (year-end) | Total estimated tax, less first payment. |
| Third Payment (Optional) | 30 September (six months post-year-end) | Covers any shortfall to avoid interest. |
Missing these deadlines can result in penalties, “SARS imposes a 10% late payment penalty along with interest on outstanding amounts, which can be a costly mistake for businesses and individuals alike,” cautions Luwes.
Calculating Provisional Tax
Provisional tax is based on an estimate of taxable income for the financial year. Taxpayers must calculate their estimated tax liability and make payments accordingly.
Here’s how to do this:
- Estimate total taxable income for the year, including salary, business profits, rental income, investment returns and any other applicable income.
- Deduct allowable expenses and tax exemptions.
- Apply the relevant tax rate to calculate total tax due.
- Subtract any PAYE already deducted (if applicable) to determine the provisional tax payable.
“SARS can request a recalculated estimate if they believe the declared income is too low or inaccurate. Taxpayers should ensure their estimates are justifiable to avoid penalties,” Luwes advises.
Avoiding Penalties and Interest
A significant challenge for taxpayers is underestimating their taxable income, leading to inadequate provisional tax payments. SARS may impose additional penalties if the second provisional tax payment is less than 80% of the final assessed tax liability (for income over R1 million) or 90% of actual taxable income or the basic amount [the lower of these amounts apply] for income under R1 million. In cases where a taxpayer underestimates their income, SARS enforces a 20% penalty on the resulting shortfall.
To avoid these penalties, Luwes states, “It is always best to proactively plan by having an 18-month tax forecast prepared to ensure sufficient cash flow for meeting tax liabilities. Taxpayers can make a top-up payment in September to correct any shortfalls and avoid unnecessary penalties.”
Taxpayers should ensure that their payments reach SARS by the due date to avoid penalties:
- Late payments attract a 10% penalty.
- SARS charges interest (currently 11.5% per annum) on unpaid amounts. (The current Interest rate on outstanding taxes can be found on SARS’ website – Table 1)
- Payments via SARS eFiling should be arranged in advance to avoid delays.
Provisional tax is an essential part of tax compliance for business owners and investors in South Africa. Understanding the deadlines, calculation methods, and potential penalties can help taxpayers manage their obligations as cost-effectively as possible.
“Proper planning and regular reviews of estimated income throughout the year can save taxpayers from unexpected tax liabilities,” concludes Luwes.
