What is it?
Provisional tax is not a separate tax from income tax. It is a method of paying the income tax liability in advance, to ensure that the taxpayer does not have a large tax debt on assessment. Provisional tax allows the tax liability to be spread over the relevant year of assessment. It requires the taxpayers to pay at least two amounts in advance, during the year of assessment, which are based on estimated taxable income. A third payment is optional after the end of the tax year, but before the issuing of the assessment by SARS. On assessment the provisional payments will be off-set against the liability for normal tax for the applicable year of assessment.
Who is a Provisional Taxpayer?
Any person who receives income (or to whom income accrues) other than remuneration, is a provisional taxpayer. Most salary earners are therefore not-provisional taxpayers, if they have no other sources of 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 if you are under 65; or
- If you receive interest of less than R34 500 if you are 65 and older or;
- You receive exempt amount from a tax-free savings account.
A provisional taxpayer is defined in paragraph 1 of the Fourth Schedule of the Income Tax Act, No.58 of 1962, as any –
- natural person who derives income, other than remuneration or an allowance or advance as mentioned in section 8(1) or who derives remuneration from an employer who is not registered for employees’ tax (for example, an embassy is not obligated to register as an employer for employees’ tax purposes)
- company; or
- person who is told by the Commissioner that he or she is a provisional taxpayer.
A company thus automatically fall into the provisional tax system.