Provisional Tax: A Simple Guide for South Africans 

If you’ve heard about provisional tax and feel a bit lost, don’t stress! You’re not alone. Let’s break it down into simple, everyday terms and use a straightforward example to help you understand what it’s all about. 

What Is Provisional Tax? 

Provisional tax is a system that allows you to pay your income tax in advance, over the course of the tax year, rather than facing one big tax bill at the end. This is mainly for people who don’t get tax deducted from their earnings automatically, like those who work for themselves or earn extra income from things like rentals or investments. 

In South Africa, if you earn any income other than a salary, provisional tax ensures that you pay your tax bit by bit as the year goes on. 

Who Needs to Pay Provisional Tax? 

You’re likely to be a provisional taxpayer if you earn income that isn’t taxed through your employer’s PAYE (Pay-As-You-Earn) system. You’ll need to pay provisional tax if: 

• You’re a freelancer, consultant, or self-employed. 

• You own property and receive rental income. 

• You earn a significant amount of interest or dividends from investments. 

If you only earn a salary from one employer, you don’t need to worry about provisional tax—your employer takes care of your tax through PAYE. 

How Does Provisional Tax Work? 

With provisional tax, you’re required to make two main payments during the tax year, based on your expected income. If your income changes, you can adjust the payments later. 

Important Dates 

• First payment: Due by 31 August. 

• Second payment: Due by 28 February (the end of the tax year). 

• Optional third payment: Due by 30 September (if you need to top up). 

Example: How to Calculate Provisional Tax 

Let’s work through an example to show how provisional tax works. 

Meet Sipho 

• Sipho is a graphic designer who freelances full-time. 

• He expects to earn R400,000 this tax year from his freelance work. 

• Because Sipho doesn’t have an employer deducting tax for him, he’s required to pay provisional tax. 

Step 1: Estimate Total Income 

Sipho estimates he’ll earn R400,000 for the year. This is his total income. 

Step 2: Estimate Taxable Income 

Now Sipho needs to work out his taxable income. This is his total income minus any deductions (like business expenses or contributions to a retirement fund). Let’s say Sipho has business expenses of R50,000 (for things like software, travel, and supplies). 

So, his taxable income would be: 
R400,000 (total income) – R50,000 (expenses) 
= R350,000 

Step 3: Calculate Provisional Tax 

Sipho now needs to calculate the tax due on his R350,000 of taxable income using South Africa’s income tax brackets. 

For the 2023/2024 tax year, the tax brackets for individuals under 65 are: 

Income Range (R)	Tax Rate
0 – 237,100	18%
237,101 – 370,500	26%

For Sipho’s taxable income of R350,000, the tax calculation would look like this: 

1. The first R237,100 is taxed at 18%, which comes to R42,678. 

2. The remaining amount, R112,900 (R350,000 – R237,100), is taxed at 26%, which is R29,354. 

So, Sipho’s total tax for the year would be: 
R42,678 + R29,354 = R72,032 

Step 4: Split into Two Payments 

Now Sipho splits his tax amount into two payments: 

• First payment (due by 31 August): Half of his expected tax: 
  R72,032 ÷ 2 = R36,016 

• Second payment (due by 28 February): The other half: 
  R36,016 

If his income changes during the year, Sipho can adjust his second payment to make sure he’s paying the correct amount. 

Step 5: Optional Third Payment (Due by 30 September) 

If Sipho earns more than expected and realises he underpaid, he can make an optional third payment by 30 September. This helps him avoid penalties for underpaying his tax. 

Why Is Provisional Tax Important? 

Avoiding a Massive Bill: Imagine if Sipho didn’t pay provisional tax. He’d have to cough up R72,032 all at once at the end of the year! Paying it in two instalments (one in August and another in February) makes it much easier to manage. 

Avoiding Penalties: If Sipho underpays or misses a payment, SARS (the South African Revenue Service) could charge him interest and penalties. Paying provisional tax on time helps him avoid these extra costs. 

Who Doesn’t Need to Worry About Provisional Tax? 

You don’t have to worry about provisional tax if: 

• You only earn a salary from an employer who deducts tax through PAYE. 

• Your additional income (like interest or investment income) is below R30,000 for people under 65. 

Provisional Tax Made Simple: Summary 

• Estimate your income for the tax year. 

• Subtract any deductions to find your taxable income. 

• Use the tax brackets to calculate your tax for the year. 

• Split your tax into two main payments: one in August and one in February. 

• If you earn more than expected, make an optional third payment in September to avoid penalties. 

Provisional tax doesn’t have to be overwhelming. By following these steps, you can stay ahead of your tax obligations, avoid surprises, and keep your financial life in order!