Why We Advise Paying Provisional Tax
And that is with provisional tax.
Why would MM Tax Services give this advice?
The simple reason is that the basics and structure of provisional tax actually work in favour of the taxpayer, usually a company or natural person not earning remuneration, as it provides a clear and transparent path to follow with any tax paid. It can easily be seen how many tax has been paid and what has been refunded.
If managed correctly.
How Provisional Tax Works
Provisional tax works on the basis of the tax authority, wishing by law, to obtain greater surety with regards to future tax revenue. It does not want to wait for time-consuming assessments and lengthy time periods to eventually collect tax revenue. In a way it is linked with the “pay now, argue later” principle.
Provisional tax is based on the basic income principle, which is generally the taxable income of the previous tax year, but the taxpayer can motivate an alternative amount. The basic amount is then used to estimate the taxable income for the present and subsequent tax years.
For example, the present 2026 tax year – 1 March 2025 to 28 February 2026 – is for all practical purposes already history. SARS is now looking to the period 1 March 2026 to 28 February 2027, which has not yet been completed.
Therefore, the taxpayer is required to pay provisional tax upfront on actual revenue for a first period in the 2027 tax year up to 31 August and the second to end February. It can even make a third voluntary payment. The actual revenue is linked to the basic amount estimated at the beginning of the year.
Why the Basic Amount Matters
The basic amount serves as the anchor for paying provisional tax. Estimating a lower amount serves little purpose. It actually defeats the purpose of what SARS is aiming for. Therefore, rather estimate a bigger amount at the beginning of the year than at the end because any overpayment of tax will be refunded at year-end, thereby benefiting the company with improved cash flow.
Yet many companies still proceed with this strategy, despite horrendous penalties payable. The estimate for the first half can never be lower than the basic amount. SARS can then assess the taxpayer on the difference between the basic amount and the higher taxable income for the first half and tax accordingly, resulting in an added burden for the taxpayer.
In addition, keep communication with SARS clear.
This article is general information about South African tax and is not tax advice. Tax outcomes depend on the specific facts of each matter. See our Website Terms of Use for more.
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