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SARS levying interest charge where no provisional tax payments were made

Tuesday, 09 December 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical 

Q: I have a client that earns business income (some companies deduct PAYE for her). When I did the first and second provisional returns, I based it on last year’s assessment (as her income was under R1 million), with PAYE to cover the estimated taxes so no provisional payment was due.

On the 30th of September, we paid the whole amount due to SARS (as this was the 3rd provisional payment). SARS charged interest on this account. I objected with the fact that all taxes were paid by 30th September 2014, and this was declined by SARS, with the following response:

Section 89Q(2) interest cannot be waived due to the fact that there was no 1st and 2nd provisional payments made.  When interest is calculated the 3rd provisional payment is not taken into account.

At the second provisional date, I did not have the relevant information to do an accurate return, and decided basing it on the last year assessed would be the safest option.

Please advise if SARS is correct in their disallowing the objection against interest.

A: From the facts provided it is clear that the request for guidance relates to interest (and not the under estimation penalty) payable in terms of section 89quat of the Income Tax Act. The new interest rules do not apply yet - in terms of the Tax Administration Act.  

In terms of section 89quat(2) SARS must, unless 89quat(3) applies, levy interest when the normal tax payable by the taxpayer in respect of the taxable income exceeds the credit amount in relation to the relevant year of assessment. The effective date, as it appears that the taxpayer is an individual, is 30 September of each year.  

So, it is not because there was no provisional payments made, but rather because the tax due exceeds the credit amount on the effective date, that interest is payable.  The credit amount is the sum of—

(a) the provisional tax paid by the taxpayer under the provisions of paragraph 21 or 23 of the Fourth Schedule in respect of such year;

(b) any additional provisional tax paid by the taxpayer in respect of such year under the provisions of paragraph 23A of that Schedule;

(c) any amounts of employees’ tax deducted or withheld by the taxpayer’s employer during such year; and 

(d) any amount of foreign taxes which may be deducted from the tax payable by such taxpayer in respect of the relevant year of assessment in terms of the provisions of section 6quat.  

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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