Understanding Provisional Tax
What You Need to Know
What is Provisional Tax?
In South Africa, taxes are required to be paid as income is earned, rather than waiting until tax returns are submitted. An employer generally withholds PAYE (Pay As You Earn) from an employee’s monthly salary. This deduction ranks as provisional taxes toward the overall total tax liability. Additional taxes must be paid by the end of the year to cover the annual liability for any extra income earned. Underpayment typically results in additional taxes through penalties and interest.
When Do You Need to Pay Provisional Tax?
If you receive extra income without any tax deductions, you must make provisional tax payments in both August and February. For example, if you are employed and in the 41% tax bracket, earning an additional R100,000 in interest income will require a supplementary payment of R15,621 in August and another R15,621 in February. The calculation is performed as follows:
(R100,000 – R23,800 exemption) × 41% ÷ 2 = R15,621
Naturally, extra earnings may arise from various sources like taxable rental income, operating as a sole proprietor, generating income abroad, much more.
Self-Employed or Freelance Income
Individuals earning self-employed or freelance income have likely not made any provisional tax payments during the year. (Except when freelancing through an employer who handles PAYE deductions.) In such situations, employers might withhold a fixed 25% of an individual’s income, even if the ultimate tax rate is higher. An additional payment for provisional taxes will consequently be necessary. In any of these cases, review your income and expenses in August and February to determine and settle the tax payable to SARS.
Who is Considered a Provisional Taxpayer?
Several scenarios may classify you as a provisional taxpayer. It is crucial to understand your obligation to top-up your taxes when earning untaxed income or if taxes are underpaid.
Avoiding Penalties and Interest
Underpayment penalties should not be taken lightly. SARS reserves the right to levy a penalty of up to 20% on the underpaid amount. Furthermore, SARS imposes interest on the amount starting from the due date, rather than the submission date of the return. The deadline will coincide with the final day of the tax year. Therefore, if an amount of R100,000 was payable by the end of February 2026 and no provisional taxes were made, submitting the tax return in August 2026 would result in SARS charging interest. Assuming the interest rate was 7.75%, the interest amount could be calculated as R100,000 * 7.75% * 6/12, amounting to R3,875.
Moreover, SARS holds the authority to levy penalties of up to 20% in cases of underpayment. Regulations concerning penalties naturally exist, though they can often be intricate. Hence, it is strongly recommended to seek the assistance of a registered tax practitioner.
Tax legislation introduces the concept of a “basic amount” applicable to taxpayers whose taxable income is below R1 million. In such instances, SARS requires that either 90% of the total liability be settled by year-end or taxes be paid based on the prior year’s taxable income, whichever amount is lower. A 20% penalty applies to any underpaid amount.
Taxpayers with taxable income exceeding R1 million are required by SARS to settle 90% of their total tax liability prior to the year’s end. “This taxpayer is not permitted to rely on the principle of the ‘basic amount.'”
For the 2027 tax year, covering the period from March 1, 2026, to February 28, 2027, SARS has raised the “basic amount” to R1.8 million. Therefore, taxpayers with a taxable income below R1.8 million are required to either align their taxable income with that of the preceding year or ensure that provisional tax payments accurately cover 90% of their income for the current tax year to avoid any provisional tax underpayment penalties.
This explanation of provisional taxes is simplified and does not encompass all potential scenarios.
Why Use a Tax Practitioner?
Due to the complexities associated with provisional tax calculations, we advise engaging the services of a skilled and experienced tax professional. FMJ Financial possesses extensive expertise in providing support to individuals within this category. Contact us for a thorough assessment and ensure your tax obligations are met efficiently.
Good Financial Management
Paying provisional taxes as income is earned promotes more effective financial management. This approach spreads the tax liability evenly throughout the year, reducing the risk of encountering a substantial payment at the time of filing, especially when funds may no longer be accessible.
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An individual earning investment income
Most financial institutions in South Africa usually do not deduct taxes from the interest you earn. Interest is taxable if a resident earns over R23,800 and is under 65, or over R34,500 if they are 65 or older. If a taxpayer earns taxable interest income of more than R30,000 (after the exemption is applied), SARS will automatically consider them a provisional taxpayer.
Individuals earning income with no PAYE deduction
When an employee receives a salary without PAYE deductions, it becomes their responsibility to ensure the payment of provisional taxes. This frequently occurs when receiving income from foreign sources. Earning income from foreign sources can be intricate; however, if an individual qualifies for the R1,250,000 exemption and their gross income, when converted to ZAR, falls within the exempt threshold of R1,250,000, no provisional tax obligations arise.
For incomes surpassing the R1,250,000 threshold, taxes paid in a foreign country may qualify for a credit in South Africa, provided that strict compliance with regulatory requirements is ensured. Should any amounts remain payable to SARS after applying these credits, the outstanding balance must be settled via provisional taxes.
We strongly advise consulting a tax professional when earning foreign income, as missed exemptions or tax credits could potentially result in significant financial implications amounting to hundreds of thousands of rands.
Individuals owing a registered business
A registered business that is also listed with SARS as an employer is required to submit monthly EMP201 returns. EMP201 submissions reflect the total PAYE deductions made from each employee, including directors or shareholders. Even if adequate PAYE was withheld, the shareholder or owner may still qualify as a provisional taxpayer. PAYE might not have been adequately deducted, or interest could have accumulated on the loan account of the shareholder/owner. Such shareholders or owners are often engaged in other activities, such as property leasing, earning investment returns, or generating additional income, which classifies them as provisional taxpayers. It is essential to understand that a taxpayer is either classified as a provisional taxpayer for all their income during the year or not at all. It is not possible to be classified as a provisional taxpayer for only a portion of the total income in a tax year.
Other cases
This list is not meant to be comprehensive. The principle is straightforward: any individual with additional income on which no taxes have been paid is expected by SARS to pay provisional taxes in August and February.
It is important to note:
A taxpayer is not obligated to register as a provisional taxpayer. The system will automatically update an individual’s status upon filing the return.
A taxpayer is required to submit an IRP6 during the tax assessment year in which they qualify as, or have transitioned to, a provisional taxpayer, provided their circumstances align with the criteria for a provisional taxpayer.
Upon submission of the next return, SARS will automatically update the provisional tax status and account for any provisional tax payments by reflecting them as credits on the issued assessment. (ITA34) This information can be obtained from either a provisional tax account statement or reviewed at the bottom of the ITA34 upon submission of the tax return.
Get Your Personal Assessment Today
At FMJ Financial, we are committed to helping you navigate your tax responsibilities with ease. Reach out to us today for professional tax consulting services.
Frequently Asked Questions
We work with hundreds of complex individual tax cases each year. As tax is our trade and we engage with SARS each day of our working life, we have learned how to present information to SARS, how to merge documents so that SARS could easily follow and we know which documents to submit to SARS and which documents would cause confusion. We work around this in our compilations and ensure that what is submitted to SARS is easy to follow, neatly presented and is exactly what SARS needs to verify audits.
We are different in that we spend a lot of time on our presentation which often leads to successful results with SARS.
We are also different in that should SARS ask questions, we consider carefully how to respond, draft written responses and give SARS exactly what is requested, nothing more, nothing less.
In the event that SARS disagrees, we lodge disputes, sometimes even on the same day SARS raises an additional assessment or the next day. 95% of our disputes are lodged within a week.
Should the objection fail and there are sufficient grounds to overturn an additional assessment, we present the information in an appeal which means that SARS legal gets involved. Due to the level of skill, qualifications and experience the tax practitioner has, the final result is per the individual return filed more than 95% of the time. (Excludes cases where information was withheld from the tax practitioner such as additional income).
We do not simply collect documents from a client and forward it to SARS. We assess documents, inspect the document for correctness and ensure that the position taken is correct, build and audit file that is simple and understandable and only then do we present SARS with a copy of our audit file. If there is no audit or review, we still keep the audit file for our current clients in case SARS opens a past return which happens on occasion.
Many clients approach us only after filing a return and after filing documents to SARS. This could make the case harder as we have to make sense of the position taken previously, and then formulate a new position and explain the reasons for the previous versions.
For example, lets say a person claims against a travel allowance and the taxpayer submits a logbook with a different opening to the previous year’s closing, this could cause irreparable damage to one’s case. Thus, if documents are merely forwarded from taxpayer to tax practitioner to SARS, one has to ask the value of the system. if on the other hand, this is inspected and any errors corrected, then the initial filing is likely to have a much more favorable outcome. There is value in inspecting documents, building a file and ensuring what is submitted to SARS is correct, accurate and understandable.
We have to understand a case before we can give feedback so we first do an initial assessment and then we are able to put together a plan of action.
If possible, we will provide an upfront quote otherwise we will call you to explain how we can assist.
Please see our video on the home page for further information.
- Regular feedback is given to clients when their case is in progress
- Your email will be answered within reasonable turnaround times, usually 1 to 2 working days.
- You can expect full management of your tax profile
- Timeous responses to correspondence
- Reminders for your specific deadlines
- A personalised tax service