The South African Revenue Services (SARS) recently announced new requirements for estimates used in provisional tax calculations.  The new requirements need to be met in order to avoid penalties on underpayment of provisional tax.  The new requirements apply to companies, close corporations, individuals and trusts and come into operation for year of assessment ending on or after 1 March 2009.

In future, the estimated taxable income used for the second provisional tax payment needs to be within 80% of the actual taxable income for the year.  If the provisional tax payments are less than 80% of the amount finally assessed, a penalty of 20% of the tax payable will be incurred.

The new requirements are therefore onerous and differ from the present requirements which are based on the taxable income of the most recent assessment from SARS.  The new requirements for estimates used in provisional tax calculations will require the taxpayer to have their tax affairs up to date before the financial year end in order to ensure that their estimated taxable income is within 80% of the final taxable income for the year.

SARS have indicated that the penalties on an underestimation of the second provisional tax payment can be waived if the estimate “was not deliberately or negligently understated and was seriously calculated with due regard to the factors having a bearing thereon”.  In order to determine a reliable estimate, we recommend that the actual taxable profit for the tax year to date and forecasted taxable profit for the remaining part of the tax year be used.  If the estimate is to be determined based on a previous tax year, the estimated percentage increase in annual turnover, gross profit and net profit together with possible expansions, mergers, discontinued operations of products, etc must be considered when determining the estimated taxable income for the second provisional tax payment.

In light of the above, assuming that the new requirements will come into operation for years of assessment ending on or after 1 March 2009, our tax compliance department will require each provisional taxpayer to provide them with an estimated taxable income for the year, actual PAYE paid by / on behalf of the provisional taxpayer for the current tax year to date and estimated PAYE to be paid by / on behalf of the taxpayer for the remaining part of the current tax year.

Those who need assistance with these estimates must kindly contact us to arrange a meeting.