I wanted to take a moment to share some information on provisional tax and how it may apply to your small business. Provisional tax is easily and understandably misunderstood, but I hope this article will give some guidance.
With provisional tax due for small businesses in South Africa on the 28 February, 2023, I thought I'd write to you and give some guidance on how provisional tax works.
I think the first thing that is commonly misunderstood about provisional tax is that many people believe it to be an additional tax/extra tax. It is not.
Provisional tax is a system designed by the South African Revenue Service (SARS) to ensure that taxpayers are paying their tax liabilities as they earn income rather than waiting until the end of the financial year to pay the full amount. This helps to prevent tax arrears and ensures that taxpayers are in compliance with their tax obligations.
As a small business owner, you may be required to make two provisional tax payments during the financial year:
- The first payment, known as the 01 provisional tax period, is due by August of the current financial year. This payment is based on an estimated taxable income for the current year and is designed to cover your liability for that year.
- The second payment, known as the 02 provisional tax period, is due by February of the following financial year. This payment takes into account any changes in your estimated taxable income and is used to finalize your liability for the current year.
In South Africa, for the 2022 financial year, the due dates for provisional tax for small businesses are:
- First provisional tax payment (01 period): 31 August 2022
- Second provisional tax payment (02 period): 28 February 2023