THE way that provisional tax works is that instead of the SA
Revenue Service (Sars) waiting for you to file your tax return after the end of
the tax year, it requires you to make an estimate half way through the tax year
of what your taxable income will be, and then pay towards that.
The benefits are supposed to be that taxpayers do not then
end up getting a shock from one huge tax bill a year, and instead pay this in
two smaller amounts - saving them cash flow strife. The benefit to Sars,
though, is that it gets its hands on your money sooner.
A tax year runs from March 1 of the previous year to the
last day of February of the year in question. So as an example, the 2011 tax year ran from March 1 2010 to February 28
2011. Thus the first provisional tax payment for the 2012 tax year is due right
now, by August 31.
This essentially means that we need to calculate what is due
for the whole 2012 tax year, and pay half of the tax liability on that amount
now (with the balance due at the end of February 2012).
We calculate our first provisional tax payment (what is due
by 31 August) like this:
Step 1: Calculate what actual income has been earned from 1
March 2011 to August 31 2011.
Step 2: Calculate what actual expenses/deductions have been
incurred from March 1 to August 31.
Step 3: Estimate what income will be for September 1 2011 to
February 29 2012.
Step 4: Estimate what expenses/deductions will be for
September 1 2011 to February 29 2012.
Step 5: Add answer from Step 3 to answer from Step 1 - this
will be your total/gross income for the year.
Step 6: Add answer from Step 4 to answer from Step 2 - this
will be your total/gross deductions for the year.
Step 7: Subtract your answer from Step 6 from your answer
from Step 5 - this will be your taxable income for the year (this is the number
that your tax liability is calculated on).
Step 8: Calculate your tax for the year, using the following
Taxable income Rate of tax
0 - 150 000 18% of taxable income
150 001 – 235 000 27
000 + 25% of taxable income above 150 000
235 001 – 325 000 48
250 + 30% of taxable income above 235 000
325 001 – 455 000 75
250 + 35% of taxable income above 325 000
455 001 – 580 000 120
750 + 38% of taxable income above 455 000
580 001 and above 168
250 + 40% of taxable income above 580 000
(For example, if your taxable income was R200 000 for the
year, then your tax for the year would be R39 500. This is calculated by taking
R27 000 and adding 25% of R50 000 - the amount above R150 000.)
Step 9: Subtract the annual rebate from your answer from
Step 8. For this year (2012 tax year), the annual rebate is R10 755 (R16 767 if
65 or older, and R18 767 if 75 or older).
Step 10: Your answer from Step 9 is your tax liability for
the whole year. Halve that, and this is how much you should pay as your first
provisional tax payment by the end of August.
So, to give an example for clarity's sake, let's use John.
Using the six months of the year already completed, John estimates that his total
income for the year will R300 000, and his total expenses for the year will be
R100 000. His taxable income for the year would thus be R200 000 (R300 000 -
Using the table, John calculates that his tax for the year
would be R39 500 (see example above). John is in his 30s, so his rebate is R10
755 for the year. He subtracts this from R39 500, to get a total estimated tax
liability for the year of R28 745. He would thus pay half of this (R14 372.50)
as his first provisional tax payment due by the end of August.
Now, regarding the estimates: you could be asking yourself
"How the heck am I supposed to estimate what I'm going to make and spend
in the next six months?" And that's a valid query. The point is, Sars
doesn't expect you to know exactly either, so it allows for some
Basically, to avoid any penalties when you submit your
second return at the end of February, you need to make sure that your estimate
of taxable income is 90% or more of your actual taxable income once you've gone
through the full year (this ratio is 80% if your taxable income is more than
R1m a year).
This is imposed to stop people from underestimating for
their first return in August (to pay as little as possible upfront). So in
essence, to avoid being hit with penalties estimate your taxable income to be
on the high side of what you think it's likely to be. (Just don't go too high,
or you'll end up paying over more than necessary in August.)
When you're on eFiling, go to the Home tab. On the left hand
side, you'll see User and a drop-down list.
Go to Tax Types, and it'll show whether you're registered
for provisional tax or not. If not, you'll need to click on Provisional Tax
(the return is an IRP6), and then register for it. Once you're registered,
you'll be able to fill in your return (under the Returns tab) and submit it.
* Gareth Cotten is a finance coach and the course convener
of the University of Cape Town Basics of Financial Management course.