Provisional tax is Income Tax in advance. It is the process whereby taxpayers estimate their total tax obligation for the tax year and make payments in advance towards their estimated tax obligation for the current year. Provisional tax returns are required to be submitted at least twice a year – on your year end and 6 months after your year end.
These returns are required for all companies, directors of companies, salaried employees who have any other sources of income and individuals trading in their personal name or who receive income other than a salary (e.g., rental income, income from investments (interest, dividends) etc). Note that all individuals have an automatic year end of February.
How does it work?
Assuming a tax year end of February, for the 2022 year (March 2021 – February 2022), taxpayers need to calculate or estimate their profit/ loss and their tax liability (if any) for the year based on trading activities between 1 March 2021 and 31 August 2021 for the first provisional tax return. An estimation/ projection of trading activities and the resulting tax for the period 1 September 2021 to 28 February 2022 must also be calculated. The tax payable is then divided by 2 and that will be the amount payable on or before 31 August 2021.
The second provisional tax return must be very accurate and will be for the full year of assessment. The return is due on or before the last working day of February. Consequently, some estimations will be used for February. SARS however wants the tax liability to be within 80% of the correct amount failing which, penalties will be levied. SARS will compare the figures submitted to your Income Tax return for 2022 and the Annual Financial Statements which they require to accompany the return.
Note that even if you don’t owe any tax because you made a loss or the company is dormant, a nil return must be submitted failing which a non-compliance penalty of R250 pm will be levied.
For more information contact Thirusha Govender
T: 033 386 1302
E: info@controlpro.works
W: www.controlproconsulting.co.za