Provisional tax is paid by individuals who earn income outside of a regular salary or traditional remuneration from an employer. This is because they do not pay tax through PAYE like salaried employees. Additionally, taxpayers are required to make at least two advance payments during the assessment year based on their estimated taxable income.
A third payment is optional after the end of the tax year but before SARS issues the assessment. These provisional payments will be credited against the normal tax liability for that assessment year.
Who Qualifies as a Provisional Taxpayer?
A provisional taxpayer is anyone who receives income other than a regular salary. Most salary earners are therefore not provisional taxpayers if they have no other source of income. Moreover, it is essential to keep in mind that receiving exempt income, as described below, does not classify you as a provisional taxpayer.
- Exempt amounts from a tax-free savings account
- Interest of less than R23,800 if you are under 65; or
- Interest of less than R34,500 if you are 65 and older; or
A provisional taxpayer as described in paragraph 1 of the Fourth Schedule of the Income Tax Act, No.58 of 1962, is any:
- Individuals who earn income other than a salary, or receive income from an employer not registered for employee tax (e.g., an embassy)
- Company; or
- Person notified by the Commissioner that they are a provisional taxpayer.
Additionally, there are certain exemptions. The following are excluded from being provisional taxpayers:
- Approved public benefit organizations or recreational clubs approved by the Commissioner under section 30 or section 30A;
- Share block companies, body corporates, or certain associations of persons that are exempt from tax;
- Non-resident owner or charterer of ships or artifacts;
- Individuals who do not earn income from a business provided their taxable income is below the tax threshold; or their income from interest, foreign dividends, rental, and unregistered employer remuneration is below R30,000;
- A small business funding organization;
- A deceased estate;
- Any association endorsed by the Commissioner under section 30B(2).
While calculating your provisional tax, don’t forget that medical aid tax credits can reduce your tax burden. Use our Medical Aid Tax Credit Calculator to see how much you can save
How to Calculate Provisional Tax
Now, let me explain the calculation process. The amount of provisional tax owed is calculated based on the estimated taxable income for that particular assessment year.
For the First Period
Half of the Estimated tax for the Full Year
This refers to estimating your total tax liability for the entire tax year and dividing it by two. Provisional taxpayers are typically required to make two payments during the year, each payment is typically half of the total estimated tax for the year.
Minus the Employees Tax For this Period (Six Months)
If you are also earning salary income subject to PAYE, you can deduct the amount of tax already deducted from your salary in the first six months of the tax year.
Minus any Allowable Foreign Tax Credits for this period
If you have paid taxes on foreign income during the first six months of the tax year, you can subtract those foreign tax credits from your provisional tax liability in South Africa.
Minus any Applicable Rebates or Medical Tax Credits
South Africa offers various rebates and credits to taxpayers such as medical aid tax credits. These can reduce the amount of tax you owe.
For the Second Period
- The total estimated tax liability for the entire year;
- Minus the employee’s tax paid for the full year;
- Deduct any allowable foreign tax credits for the full year;
- Minus any applicable rebates or medical tax credits;
- Deduct the amount paid during the first provisional period.
For the Third Period (Optional)
- The total estimated tax amount for the full year;
- Deduct the employee’s tax paid for the full year;
- Minus any allowable foreign tax credits for the full year;
- Deduct any rebates or medical tax credits;
- Subtract the amount paid for the first and second provisional tax periods.
You can submit your payments through the SARS online platform after registering an account. Furthermore, you only need to register once using the client information to manage all taxes. However, if you are already registered, simply add provisional tax to your profile to file your IRP6 return online.
Calculating and paying taxes ahead of time helps people follow tax rules, avoid penalties, and plan finances more surely. Using the calculator simplifies the process, making it accessible and convenient for all taxpayers.