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SARS changes demand extra care from provisional taxpayers

22 March 2016   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (BDlive)

Provisional taxpayers will soon have to take additional care when estimating their taxable income, as Treasury is proposing changes to how penalties for underestimating are calculated.

It is proposed that all income, even income that has already been taxed (such as certain lump-sum pay-outs), should be included in the determination of the underestimation penalty.

The South African Revenue Service (SARS) says provisional tax is not a separate tax, but "merely a mechanism" to pay the normal income tax during the year in which the income is earned.

Provisional taxpayers are individuals or companies that earn income other than their remuneration.

These taxpayers are obliged to make two provisional payments, normally at the end of August and the end of February. There is a third voluntary payment at the end of September.

SARS Tax Statistics 2014 showed provisional tax payments by individuals contributed 6.2% of personal income tax collections. In 2015 almost 8% of the registered individual taxpayers declared business income, which made them provisional taxpayers.

SARS says the introduction of the 80% rule requires taxpayers with taxable income of more than R1m to settle at least 80% of their tax liability by the time they make their second provisional tax payment.

"This requirement increased the combined first and second provisional tax payments, and substantially reduced third provisional tax payments to levels well below the 20% limit allowed for third provisional tax payments," SARS says in the tax statistics publication.

Ernst & Young tax director Charles Makola says the two six-monthly payments are based on estimates of taxable income. The estimate of the taxable income for the second tax payment is required to be closer to the actual payment than a mere estimate.

Taxpayers who stray too far from the ultimate amount due will be liable for an underestimation penalty. According to Mr Makola, the penalty applies where substantial differences exist between the estimate and the employees’ tax and provisional taxes already paid.

"At issue is how do you determine the base on which you calculate the penalty. More specifically, which amounts should be taken into account, and which should be excluded in determining the 80% of taxable income."

Currently income such as retirement benefits are excluded as SARS would have already received the amount of tax, because it is generally withheld and paid to SARS, says Mr Makola, who is also a committee member of the South African Institute of Tax Professionals (SAIT).

He explains the second exclusion covers "one-off or irregular awards" such as severance benefits for loss of employment and employer-owned insurance policy payouts to the employee’s dependents or nominees.

However, this is set to change.

"Excluding the amount from the penalty calculation was a minimal benefit to taxpayers. In tough times, every cent matters and SARS is gunning for those cents in any way possible," says Mr Makola.

He says SARS may remit this penalty if it is satisfied that the taxpayer did not deliberately or negligently understate the taxable income.

This article first appeared on


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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