With the second provisional tax season upon us it is only fitting that we get a better understanding of provisional taxes.
1) What is provisional tax?
2) Who are provisional taxpayers?
Provisional tax is an estimate of the taxpayer’s tax liability at the end of the year of assessment.
This estimated tax liability is paid twice during each year of assessment. The first payment made at the end of month 6 from the start of the year of assessment and the second one at the end of the year of assessment.
(For example, a provisional taxpayer with a December year end will make its payment at the end of June and December. Provisional taxpayers who are individuals have a year of assessment ending in February. Therefore, payments are to be made at the end of August and February every year).
The estimated tax liability is calculated by estimating the amount of income you are expecting to receive during each year of assessment.
The above mentioned two provisional payments later become advantageous during the annual income tax season. These will be used to set off against the actual taxpayer’s tax liability when submitting their annual income tax return.
How does a taxpayer know that they are eligible to register as a provisional taxpayer?
Any individual that receives any other income other than their normal remuneration.
(i.e. your normal salary from your registered employer)
Therefore, any taxpayer that receives income such as local and/or foreign interest income, rental income, local and/or foreign dividends etc. Entities, trusts and body corporates are also to register as provisional taxpayers.
Provisional tax payments are set-off against any tax liability incurred when submitting your annual income tax return. If overpaid you will be refunded this overpayment.