If you’ve been asking how does provisional tax work in South Africa, this is the guide for you. The provisional tax system helps business owners, freelancers, and investors pay income tax in advance. It applies to people who earn income from sources other than a salary. Provisional taxpayers must estimate their taxable income and make two payments during the tax year. This prevents a large tax debt on assessment. You’ll still file your income tax return later, but these advance payments help cover the tax liability before the end of the tax year.
What Is Provisional Tax and Who Must Pay It in South Africa?
Provisional tax is not a separate tax. It is a method to help taxpayers pay income tax in advance. It spreads your income tax liability across the year of assessment.
If you earn income other than a salary, you may need to make provisional payments. This includes rental income, interest income from investments, and income from a trade. Even a side hustle or small business you run may make you a provisional taxpayer.
Provisional taxpayers are required to estimate their taxable income and pay tax based on that figure. If your total tax paid from the first and second payments is accurate, you won’t have tax owing at the end. This is important to avoid additional tax and interest.
Who Qualifies as a Provisional Taxpayer Based on Income and Tax Thresholds?
A provisional taxpayer is someone who earns income outside formal employment. If you receive a salary through your employer and that’s your only income, you are not a provisional taxpayer.
You qualify if:
- You earn income from a trade or small business.
- You receive rental income from a property.
- You have interest income from investments.
- Your annual income includes income other than a salary.
The South African Revenue Service defines who must register for provisional tax. People who earn income beyond the thresholds must declare that income for provisional payments.
If you’re unsure, you can visit your nearest SARS branch in person for guidance. The system ensures that the amount of tax you owe is spread throughout the tax period.
How to Register as a Provisional Taxpayer and Start Paying SARS in Advance
You must register for provisional tax if your income meets the criteria. You can complete the process online or at the nearest SARS branch.
To do it online, go to your SARS profile and add the tax types related to provisional tax. Once registered, you’ll need to file an IRP6 tax return twice a year. These are based on estimated taxable income. Your payments are used to reduce the income tax liability due at the end of tax season.
Make sure to confirm every change on your SARS eFiling account. That includes contact details, bank info, and your current address.
When and How to Submit Your Provisional Tax Return for Each Tax Year
Each year of assessment includes two provisional returns and possibly a third provisional tax return. These help calculate and settle your tax liability before your final income tax return.
Here’s the schedule of the income tax for provisional returns:
- First provisional tax: Due 31 August of the current tax year.
- Second provisional tax: Due 28 February, the end of the tax year.
- Third provisional: Due 30 September, seven months after the tax year ends.
Each tax return must reflect an accurate estimate of taxable income. SARS uses these figures to calculate normal tax payable. If your figures are wrong, you could face penalties or interest.
These submissions form the foundation for your final annual income tax return, due the following January. That’s 11 months after the tax year ends.
How the Provisional Tax Payment System Works During the Tax Year
Provisional tax is paid in two main stages, with an optional third payment. These payments are made during the tax year based on your projected income.
The first provisional tax payment is due halfway through the year. It is based on 50% of your taxable income for the year. The second provisional tax is due at the end of the tax year. That’s when you pay the balance of your tax payable for the full year.
If your first or second estimates are too low, you can make a third provisional payment. This helps avoid outstanding tax and limits the risk of additional penalties.
The payment of the tax should reflect your actual income and deductions. You must pay income tax that aligns with your estimates. This reduces the chance of a large tax debt on assessment once your final income tax return is submitted.
How and When Provisional Tax Is Paid to SARS by Individuals and Businesses
Taxpayers are required to submit provisional tax estimates twice per year. These estimates determine your tax amount based on how much you expect to earn. Once calculated, you must ensure all tax payments to SARS are completed before the relevant deadlines.
Each taxpayer has a responsibility to ensure that SARS receives the payment on time and correctly allocated. If you’re unsure of how to calculate your amount, it’s worth working with a registered tax professional. The correct tax must be paid to avoid later penalties or delays.
SARS does not deduct these amounts automatically. The taxpayer calculates it, submits the IRP6, and then pays it over to SARS using the preferred payment method.
How to Pay Provisional Tax and Stay Compliant with the Income Tax Act
Compliance starts with correctly submitting a provisional tax return. You must do this twice every financial year. Failing to submit on time may result in penalties or interest charges.
SARS expects each provisional taxpayer to submit their provisional tax return within the specified deadline. This includes reflecting your estimated earnings, deducting any credits, and making the required payment before the cut-off.
If your calculations are inaccurate, and you fall below the accepted threshold, SARS may issue penalties even if the payment was made.
How SARS Processes Your Tax Return and Assesses Final Income Tax Payable
Once your IRP6 returns are submitted and payments are made, SARS will await your final annual tax return – the ITR12. This tax return at the end of the year allows SARS to assess how much you’ve already paid and how much, if any, is still owing.
At this stage, SARS compares the provisional payments you’ve made to your final tax assessment. If your liability for normal tax exceeds your provisional payments, you will need to settle the balance. If you’ve overpaid, a refund will be processed after the final tax filing is complete.
Always ensure your records are accurate, especially if your income changed significantly from the previous tax year. Your final return reflects your full financial position and determines your normal income tax liability.
How SARS Processes Your Tax Return and Assesses Final Income Tax Payable
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