Understanding the ins and outs of taxes can seem daunting as an everyday taxpayer. It should not be a painstaking process to understand why your hard-earned money is allocated to certain taxes, and that is why we have taken it upon ourselves to explain some of the terminology and criteria. Firstly, it is important to note that provisional tax is not any different from income tax. Its only separating factor is that it is submitted in advance, prior to the end of the tax year, instead of submitting a large amount (or tax debt) to SARS upon assessment of your Income Tax Return (ITR12). This allows your tax liability to be spread over the appointed year. This process involves paying two amounts (based on the estimated taxable income) in advance during the appointed year of assessment. The first payment must be submitted within the first six months of the tax year, and the second payment must be submitted at the end of the year of assessment. The taxpayer has the option of submitting a third payment that functions as a “top-up” after the end of the tax year, but before SARS issues the assessment. To qualify as a provisional taxpayer, you must earn an income other than remuneration, in other words, your tax contribution should not be submitted to SARS via PAYE deductions from your salary. A provisional taxpayer earns their income by other means than a salary on which income tax is deducted. A provisional taxpayer can also be a company or a person who is appointed by the Commissioner as a provisional taxpayer. Some more examples of provisional taxpayer status are individuals who receive a rental income, interest and investment income, and a freelance/business income. However, there are a few exceptions that apply to the abovementioned classifications and would be best to clarify with your accountant, or to consult the SARS website for 2023’s tax thresholds. Be cautious when it comes to provisional taxes, as certain penalties apply. When the payment date is missed, even by just a day, a penalty of 10% of the total tax amount due is incurred. To add to the misfortune, SARS will add on interest at the prescribed rate. Reporting incorrect figures when estimating your taxable income can land you a hefty underestimation penalty. As a taxpayer, the penalty can be incurred if your taxable income in your final tax return is more than the estimate in your second provisional return. When you fail to submit a return after the deadline, SARS considers it a “nil” return. If your return was nil to begin with, you will receive a 20% underestimation penalty upon final assessment. If for any valid reason, such as a delay with the bank’s systems, your payment could not be processed in time, SARS will accept genuine proof of your claim. However, interest will still be charged in most cases. As a golden rule, it is imperative to file your taxes on time to avoid any penalties, frustration and inconvenience that late or non-submission may cause. Having a qualified and experienced accountant or tax practitioner at your disposal will be very helpful in this regard. Professionals can register you as a provisional taxpayer, calculate your estimated taxable income and even submit your returns on time on your behalf. Contact Newtons to meet your experienced tax practitioner.