Fairly recently changes to provisional tax penalties were made in amendments to the Income Tax Act and the Tax Administration Act. The amendments affect the provisional tax penalties as follows:
1. Penalty for late submission:
|This penalty has been removed, with effect from the 2015 / 2016 tax year (all tax years starting on or after 1 March 2015).
What does this mean for the provisional taxpayer who submits an IRP6 late?
Where a provisional tax return is submitted late, a “nil” return will be deemed by SARS to have been submitted. The penalty for the underestimation will be imposed on the difference between R0.00 and the actual estimation on the IRP6 submitted late.
Why did SARS make this amendment?
It deals with the potential argument that the underestimation penalty does not apply where no provisional tax estimate was submitted. It also ensures that a taxpayer who did not submit an estimate to be in a more favourable position than the taxpayer who submitted an underestimation.
|2. Underestimation penalty reduced by the late-payment penalty:|
|With effect from the 2014 / 2015 tax year (all tax years that started on or after 1 March 2014), the 20% underestimation penalty will be reduced by the amount of any late payment penalty (the penalty explained in point 1 above). This ensures that the taxpayer is not penalised twice for the same fault.|
|3. Underestimation penalties payable on additional estimates made by SARS:|
|SARS has the discretion to call on a taxpayer to justify a provisional tax estimate. If SARS is not satisfied, SARS can increase the amount to an amount they consider as reasonable.
Before the amendments SARS could not impose an underestimation penalty of 20% on this increase.
With effect from the 2014 / 2015 tax year (all tax years that started on or after 1 March 2014) SARS is entitled to impose the underestimation penalty on their increase of the provisional tax estimate.
|The underestimation penalty will be triggered only in the following scenarios:|
|1. Taxpayers with a taxable income of less than R1 million:|
|If the total of the first and second provisional payments is less than 90% of the normal income tax payable on assessment, and is less than the “basic amount” (that is, the normal income tax payable according to the most recent previous assessment).|
|2. Taxpayers with a taxable income of R1 million or more:|
|If the total of the first and second provisional payment is less than 80% of the normal tax payable on assessment, regardless of the basic amount.|
|SARS may remit the underestimation penalty if it is satisfied that the estimate was seriously calculated and was not deliberately or negligently understated.
From experience, we would suggest to try to avoid an underestimation penalty as far as possible, as SARS does not remit this penalty easily, even where good ground exist to ask for a remittance.
If you have any enquiries, please contact Petri Westraadt at email@example.com
- Silke 2015 / 2016
- SAICA Volume 3 Tax Legislation
- SARS External Guide for provisional tax 2017