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Can SARS penalise you for making a third (i.e. top-up) provisional tax payment?

11 February 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: For the 2014 tax year a client of mine had a profit of R2 000 176. The income tax according to the small business corporation (SBC) rates was R465 751. On the first provisional tax return for 2014 I submitted a nil return because I was still doing 2013 financial statements and could thus not estimate the appropriate taxable income as since I had no correct information at my hands at the time. Furthermore, I was also late so I thought to avoid penalties I must just submit a nil return. 

On the second provisional tax return for 2014 again it looked like I was late but I wasn't aware of that and submitted the return and paid R325 000. As a result, I was hit with penalties and interests of R50 000 and the client decided to pay it because at the time he was rushing for a tax clearance certificate. 

Now, on 25/01/2015, before I submitted the 2014 ITR14 I did my calculations again and figured I must make a third provisional tax payment of R100 000. According to my calculations, the total tax due will be R465 751.51. So far I have paid R375 000 (including penalties and interest) + R100 000 (that I am about to pay as a third provisional tax payment) = R475000. 

I did so and paid thinking that I got it right and I also thought that the assessment would come back reflecting a refund of R9 249. Unfortunately I was hit with additional tax again for that R100 000 additional payment. As far as I understand, a third provisional tax payment is optional. How then can I be penalised for that? Please explain that to me. 

The assessment for 2014 income tax return has just been assessed and it shows that normal tax is R465 751 as I anticipated. Additionally, my client has been penalised R70 748.28 for the underestimation of taxable income. There was another penalty of R7 995.06 for the nil (and late) submission of the first 2014 provisional tax return.

I want to write a letter the Commissioner and ask for the R70 748.28 and R7995.06 penalties to be waived and explain to them that the under-estimation did not occur due to my negligence. 

A: Paragraph 20 of the Fourth Sch ITA will impose a 20% penalty of the difference between 80% of the normal tax on actual taxable income and the amount of actual tax paid by the end of the year of assessment. If you submitted a Rnil 1st provisional return and paid your second late, the penalty will be 20% of 80% of the tax on actual taxable income. Therefore 20% x (80% x R465 000)= +- R74 000 penalty. Note that the law was amended from 20 Dec 2012 (Tax Administration Laws Amendment Act 2012) to base the second part of the test on the amount paid during the year of assessment whereas previously it was based on the amount estimated. Therefore though your estimate was not that wrong, the fact that you paid late resulted in the second provisional tax payment being disregarded in determining the underestimation penalty. In respect of the 1st provisional payment no penalty applies, SARS can merely reject the estimate and substitute it for an estimate of its own if the taxpayer cannot justify it. 

The third "top up” payment is voluntary as noted, but only impacts on interest payable to SARS, it does not have an impact on the paragraph 20 underestimation penalty.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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