Johannesburg - Finance Minister Pravin Gordhan needs to introduce some changes for provisional taxpayers in his Budget next week, the SA Institute of Chartered Accountants (SAICA) said on Thursday.
The problem with the provisional tax structure was the underestimate penalty, which was driven off the taxable income numbers without regard to the actual tax paid, SAICA said in a statement.
Project director of tax Muneer Hassan said this resulted in penalties being applied irrespective of whether the actual tax paid by the taxpayer was correct, or if it was an overpayment.
SAICA recommended that the calculation of the underestimated penalty be amended to take into account the actual tax already paid by the taxpayer.
It said the legislation did not recognise the difference when the recipient was a provisional taxpayer.
"If the taxpayer includes the lump sum, as he or she should in the estimate, the system automatically calculates the tax due for purposes of the provisional payment and the taxpayer ends up having to pay more tax than required," said Hassan.
He said if a lower estimate was used to calculate the "correct" tax amount, the SA Revenue Service (Sars) could levy penalties for the underestimation of income.
"Sars levies the penalty because the taxable income was underestimated, but the lump sum was in fact already correctly taxed and the tax itself was not underpaid.
"SAICA proposes that the law is amended to exclude from the estimated taxable income for purposes of provisional tax for both kinds of retirement fund lump sum benefits and also the severance benefits," said Hassan.
Other areas of concern included that retirement lump sums and severance benefits were subject to tax at rates differing from that at which other taxable income was taxed.