It is important to know whether you need to register as a provisional taxpayer and what the implications of being a provisional taxpayer are.
Many people are still unsure about whether they should or shouldn't be registered for provisional tax.
The easiest way to answer the question of who should register as a provisional taxpayer, is to answer the question of who does not need to register as one:
* If your sole source of income is in the form of remuneration (salary or wages); or
* If your total taxable income is below the tax threshold (currently R18 500) and you are not currently registered as a taxpayer; or
* If you are registered as a taxpayer and earn investment income (interest income is taxable, dividends are tax free) which is less than R2 000.
So if you are trading as a sole proprietor, or earn taxable investment income which is more than R2 000, you must register as a taxpayer.
Once you have advised the South African Revenue Services (SARS) that you need to be registered as a provisional taxpayer, what does this mean?
As a provisional taxpayer you will need to submit additional forms, IRP6s, to the SARS, detailing payments that need to be made over and above any employees' tax that you may already have paid.
There is some confusion amongst some provisional taxpayers regarding the payment of employees' tax. This has probably arisen as a consequence of the fact that directors of private companies are not required to pay employees' tax on the income that is paid to them by the company of which they are a director.
However, even if you are a provisional taxpayer because you receive income as a director of a private company, if you are an employee of another company, that company, as your employer, will be required to deduct employees' tax from the income paid to you.
In addition to submitting IRP6 forms, provisional taxpayers are required to make payments by certain dates which are structured in such a way as to ensure that the total amount of tax you owe for any particular tax year will be paid by the end of the September following the end of the tax year.
So, for example, the first payment for the 1999 tax year, which will end on 28 February 1999, must be made on, or before August 31, 1998. The second payment must be made on or before February 28, 1999. The third and final payment must be made by September 30 , 1999.
Provided all the payments have been made on time and all the tax owed for the 1999 tax year has been paid by September 30, 1999, (assuming the second payment has been made correctly) you will not be charged interest.
However, if by then you still owe tax, you will be charged interest, at a rate of 16 percent, on the outstanding balance. If you make your first or second payments late, you will be charged a penalty of 10 percent and interest until payment is made.
It may not be clear what your total taxable income for the year will be when you make the first and second payments. So, in order to make it clear what must be paid, certain rules have been prescribed.
The first and second payments must be based on the "basic amount". This is taxable income reflected on your last tax assessment. For example, if your last tax assessment was the 1996 one and it reflected taxable income of R100 000, you will base your first payment for 1999 on R100 000.
You then divide the tax calculated on R100 000 by two (half the year) and deduct any tax (for example employee's tax) you have already paid, and the balance will be payable.
(If you have never been assessed before, the payment will be based on taxable income of nil.)
The second payment will represent the balance of the tax payable on the R100 000, less any tax already paid. Any further tax payable when you do an accurate calculation of your taxable income must be paid by September 30.
If you think your income will be less than your last assessment, you may base your first and second payments on a lower figure.
However, if your income estimate is lower than the basic amount, and lower than 90 percent of the actual taxable income, you will be charged a penalty of 20 percent of the difference between the actual tax payable and the tax on the lower of these two amounts.
So if you are liable for provisional tax avoid paying penalties by being aware of the due dates and rules for calculating what you owe.