Provisional tax is a mechanism which essentially helps taxpayers to manage their income tax liabilities by having to avoid making one large payment on assessment. It is also a mechanism for SARS to collect taxes upfront helping SARS manage its tax collection mandate and cashflow.
Provisional taxpayers are required to make reasonable and accurate estimates of their income for a said financial year. The first provisional tax payment is due and payable to SARS within six months from the start of a financial year, and a second payment is due on or before the last business day of the financial year.
Although, a taxpayer is permitted to use the basic amount (i.e. taxable income based on the last / preceding year of assessment), taxpayers are required in terms of the Income Tax Act to seriously calculate their provisional tax estimates. It is therefore imperative that provisional taxpayers keep comprehensive records of their financial information to ensure accurate forecasts.
We have recently seen an increase in SARS focus and scrutiny of taxpayer's estimates filed.
There seems to be a misconception amongst taxpayers that SARS cannot demand additional payments where it has been based on the basic amount.
Taxpayer's must take note that it is written into law that SARS has the right to request taxpayers to justify their estimates and in so, may demand for additional payment. Paragraph 19(3) of the Fourth Schedule to the Income Tax Act specifically grants SARS the administrative power to act and it reads as follows:
"The Commissioner may call upon any provisional taxpayer to justify any estimate made by the provisional taxpayer . . . or to furnish particulars of the provisional taxpayer's income and expenditure or any other particulars that may be required, and, if the Commissioner is dissatisfied with the said estimate, he or she may increase the amount thereof to such amount as he or she considers reasonable, which increase of the estimate is not subject to objection and appeal."
Taxpayers are therefore encouraged to approach the provisional tax returns with absolute care and diligence. This will also safeguard taxpayers from falling short on their estimates and consequently avoid unnecessary penalties.
