Obligation to file estimates
Provisional taxpayers are required to declare to SARS half their estimated taxable income within 6 months of the tax year (before 31 August) and their estimated total taxable income before the end of the tax year (28/29 February). The tax year for individuals runs from 1 March until 28/29 February of the following year.
Provisional taxpayers, especially first and second timer filers, typically repeat the same mistakes each year when it comes to filing their first and second provisional tax returns.
The more common mistakes include:
- Not becoming aware of provisional taxpayer status and obligation to file;
- Filing late returns or not filing at all;
- Underestimating taxable income; and
- Making late payment of provisional tax.
The worst mistake a taxpayer can make is to file late and in which event SARS are likely to treat the filing as a “nil” return.
Penalty and Interest
Irrespective of the mistake made by the taxpayer, SARS will levy penalties for non-compliance and, where tax is underestimated, or payment is late, SARS will also levy interest until the total underestimated/underpaid tax is paid in full.
Taxpayers can face a penalty up to 200% of the value of the tax payable and interest of approximately 10% per annum.
Avoid Imposition of Penalties and Interest
Taxpayers who become aware that they may have made one of the aforementioned mistakes must urgently contact a tax professional to investigate whether an application may be made to SARS to rectify the error, correct the tax filing and avoid penalties and/or interest.
It is important to note, however, that this is typically only possible where SARS is approached before the taxpayer has paid the outstanding tax liability and the appropriate application process is followed.