By Nicolas Botha
The recent announcement that the deadline for provisional taxpayers has been brought forward to January 23, 2023, is causing confusion.
Some provisional taxpayers have mistaken this to mean that their second provisional tax submission is due sooner this year, but this is incorrect.
In fact, it is their annual income tax that is due on January 23 instead of January 30 – seven days earlier than normal. However, their second provisional tax submission and payment is due on or before the last business day of February 2023.
The close relationship between annual income tax and provisional tax makes this kind of misunderstanding easy, especially if such announcements are not carefully worded.
Provisional vs annual income tax
Non-provisional taxpayers should have submitted their annual income tax between July 1, 2022 and October 24, 2022. They therefore declared their annual employment income after having earned it in the previous tax year, that is, between March 1, 2021, and February 28, 2022.
A provisional taxpayer, on the other hand, is anyone defined in paragraph 1 of the Fourth Schedule of the Income Tax Act, No.58 of 1962, as any:
– natural person who derives income, other than remuneration or an allowance or advance as mentioned in section 8(1) or who derives remuneration from an employer who is not registered for employees’ tax.
That is, any person who receives income (or to whom income accrues) other than a salary, is considered a provisional taxpayer.
Unlike employment-only taxpayers, provisional taxpayers are given more time to reconcile and declare their total personal income from employment and non-employment sources. They have from July 1, 2022 until 23 January 2023 to submit their annual tax returns and pay tax on all income earned between March 1, 2021 and February 28, 2022.
A second tax – misunderstanding
Provisional tax is not a separate tax but forms part of the taxpayer’s personal income tax obligation.
This is where things get tricky. While personal income tax is declared in respect of the preceding tax year, provisional tax is declared in the current tax year in which the non-employment income is earned.
Provisional taxpayers declare their full income twice each year: the first provisional submission is made before 31 August and the second before the end of February in the following calendar year. The payments on these first and second submissions are then consolidated into the provisional taxpayer’s eventual declaration of their total personal income within the annual submission.
This means that, for the 2022/23 tax year, provisional taxpayers should have made their first declaration of their income by August 30, 2022 and will make their second on or before February 28, 2023. Their payment of the tax on that income will then be deducted from the tax calculated on the total personal income they declare in January 2024.
PAYE for non-employment income
According to Sars, provisional tax ensures taxpayers with sources of non-employment income do not fall behind on their tax payments.
Employees have the Pay As You Earn (PAYE) system to protect them. Every month, employers calculate and withhold tax on the income each of their employees received that month, in relation to their annual earnings. This withheld tax must be paid over to Sars within seven months of the month in which it was deducted.
At the end of the year, what the employed taxpayer has paid to Sars through PAYE is reflected on their IRP5 certificate and the “prepaid” amount is subtracted from their total calculated tax obligation.
Provisional tax achieves the same outcome for taxpayers with earnings received not subject to PAYE, as their tax cannot be administered by an employer.
It therefore helps the taxpayer to regulate their own tax obligation, to avoid ending up in debt to Sars.
Being specific
The relationship between annual income tax and provisional income tax can make it confusing to separate the two systems, due to this not being a separate tax but rather a payment processing tool. This is exactly what happened as some news outlets did not clearly specify which of the two deadlines had been moved forward.
To reiterate, it is the provisional taxpayer's annual income tax – not their second provisional tax submission – that is due by January 23, 2023.
Provisional taxpayers can breathe a sigh of relief, knowing that they will be under no more pressure than usual to meet their provisional tax obligation.
Nicolas Botha, tax team compliance and processing manager at Tax Consulting South Africa.
*The views expressed here are not necessarily those of IOL or of title sites.
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