Interest and penalties on provisional tax under-estimations

Provisional tax is designed to help taxpayers, especially businesses and the self-employed, spread their income tax payments across the year, rather than paying everything at once. But if your estimated taxable income is too low, SARS may charge interest and penalties for under-estimation.

When penalties apply

SARS compares your provisional tax estimates with your actual taxable income at year-end. If your estimates were too low, you may face:

• A penalty for under-estimation, and
• Interest on the shortfall amount.

To avoid this, your second provisional tax estimate (due at the end of your financial year) must be accurate and realistic.

For most taxpayers, the following general rules applies:

• Your second estimate must be within 80% of your actual taxable income to avoid penalties.
• For smaller taxpayers with income below R1 million, SARS allows the estimate to be at least 90% of the prior year’s taxable income.

If your estimate falls below these thresholds, SARS may impose a penalty equal to 20% of the shortfall, plus interest until the amount is settled.

Accurate provisional tax estimates:

• Prevent unnecessary penalties and interest
• Help manage cash flow
• Keep you in good standing with SARS

A cautious and realistic estimate is always better than an overly optimistic one.

If you’re unsure how to calculate your provisional tax or want to review your estimates before submission, PRNC can help. Our team ensures your tax calculations are compliant, accurate, and penalty-free. Contact PRNC today for professional tax guidance and peace of mind.