Description
The Income Tax Act, 1962, stipulates interest, penalties and additional tax payable in respect of provisional tax.
Section 89bis – Interest
Interest at the prescribed rate (currently 11% per annum), is payable on late payments in respect of first, second and third periods.
Paragraph 27 – Penalties
Penalty of 10% will also be levied on any late payment in respect of the first and second periods.
Paragraph 20 – Additional Tax:
- Additional tax of 20% may be imposed on assessment on an under-estimate of income in respect of the second period.
- The additional tax will be imposed on the difference between the normal tax as disclosed for provisional tax purposes and the lesser of the following:
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- the normal tax on the basic amount
- the normal tax on 90% of the actual taxable income.
Paragraph 20A – Additional Tax:
- This additional tax may be imposed on assessment for the failure to submit a timely estimate of income.
- The additional tax is equal to 20% of the amount by which the normal tax payable exceeds the sum of the provisional tax plus employees tax paid for such tax year.
89quat – interest
Interest in terms of Section 89quat is either levied on an underpayment of tax or paid on an overpayment of tax from the ‘effective date’. (See below for an explanation of the ‘effective date’.)
89quat(2) – interest
Interest in terms of Section 89quat(2) is payable by a provisional taxpayer if the normal tax exceeds the ‘credit amount’ (i.e. an underpayment of tax) and if :
- in the case of an individual or trust, the taxable income for the year of assessment exceeds R50 000
- in the case of a company, the taxable income for the year exceeds R20 000
- this interest is levied at the prescribed rate (currently 11% p.a.), and is calculated from the day following the ‘effective date’ to the day before the first due date on the relevant assessment notice
- interest on underpayment paid by a taxpayer is not tax deductible.
Example – 89quat(2) interest
If the first due date on the assessment notice is 1 December 2006, interest on underpayment for the 2006 year of assessment (February year-end) will be calculated from 1 October 2006 to 30 November 2006.
89quat(4) – interest
- Interest is payable to a provisional taxpayer if the ‘credit amount’ exceeds the normal tax payable for that year of assessment and
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- the amount exceeds R10 000
- in the case of an individual or trust, the taxable income for the year of assessment exceeds R50 000
- in the case of a company, the taxable income for the year exceeds R20 000
- This interest is payable to the taxpayer at the prescribed rate (currently 6,5% p.a.) on the amount by which the ‘credit amount’ exceeds the normal tax and is calculated from the day following the ‘effective date’ to date of refund.
- Interest paid to a taxpayer by the South African Revenue Service (SARS) on an overpayment is taxable and must be declared under interest income in the income tax return for the tax year in which it is received.
The effective date is where the year of assessment ends on 28 or 29 February, seven months thereafter and for approved financial yearends that end on a date other than 28 or 29 February, six months thereafter.
The ‘credit amount’ in respect of a provisional taxpayer is the sum of
- all provisional tax payments (first, second and third periods) made
- employees tax paid
- allowable foreign tax credits for the applicable year of assessment.
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Steps to follow
- You will receive a notice from SARS if you need to pay any interest, penalties and additional tax in respect of provisional tax.
- Consult the IRP 12 Guidelines if you require more information on this topic.
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Legal framework
Income Tax Act, 1962 (Act 58 of 1962) – Section 89bis, 89quat and paragraphs 20, 20A and 27 of the Fourth Schedule.
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Service standard
SARS will notify you if you need to pay any interest, penalties and additional tax in respect of provisional tax.
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Cost
The service is free.
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Forms to complete
There are no forms to complete.
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Contact details
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