Provisional Tax in South Africa: What You Need to Know
As a business owner or a self-employed individual in South Africa, you may be required to pay provisional tax. Provisional tax is a way of paying your income tax in advance, based on your estimated taxable income for the year. In this blog post, we’ll take a closer look at provisional tax in South Africa, including who needs to pay it, how it works, and some tips for managing your provisional tax payments.
If you are a provisional taxpayer, you are required to submit two provisional tax returns during the year, in addition to your annual income tax return.
You are considered a provisional taxpayer if:
- You earn income from a business or trade, and you are not required to pay PAYE (Pay-As-You-Earn) tax.
- You earn rental income from properties you own
- You earn income from investments, such as dividends, interest, or rental income
- A company
If you are unsure whether you are a provisional taxpayer, it’s best to consult with a tax professional who can advise you on your individual circumstances.
You are not considered a provisional taxpayer if:
- You receive interest of less than R23 800 if you are under 65; or
- You receive interest of less than R34 500 if you are 65 and older or;
- You receive an exempt amount from a tax-free savings account
- You do not earn any income from carrying on any business – provided that your taxable income will not be more than the tax threshold for 2023 tax year for taxpayers below the age of 65 –R91 250; age 65 to below 75 – R141 250 and age 75 and over – R157 900);
- or your taxable income earned from interest, dividends, rental and remuneration from an unregistered employer will not be more than R30 000
How Does Provisional Tax Work?
Provisional tax is paid in two instalments during the year, usually in August and February. The amount you need to pay is based on your estimated taxable income for the year, less any allowable deductions. You are required to estimate your taxable income for the year, which can be tricky if you have a fluctuating income or if you’re just starting out in business.
If your actual taxable income for the year is higher than your estimated income, you will be required to pay the difference when you submit your annual tax return. If your actual taxable income is lower than your estimated income, you may be entitled to a refund.
Tips for Managing Your Provisional Tax Payments
1. Keep accurate records of your income and expenses throughout the year, so you can estimate your taxable income more accurately.
2. Use a tax calculator to estimate your provisional tax payments. There are many free tax calculators available online that can help you estimate your tax liability.
3. Consider setting aside a portion of your income each month to cover your provisional tax payments. This can help you avoid a large tax bill at the end of the year.
4. Consult with a tax professional to ensure that you are claiming all the deductions you are entitled to, and to help you manage your provisional tax payments.
Provisional tax can be a complex and challenging area of tax for business owners and self-employed individuals in South Africa. By understanding who needs to pay provisional tax, how it works, and some tips for managing your payments, you can ensure that you are meeting your tax obligations and avoiding any penalties or interest charges. As always, it’s important to consult with a tax professional who can advise you on your individual circumstances and help you navigate the complex world of tax.
