Provisional tax confuses more South African business owners than almost anything else SARS does. So let's clear up the biggest misunderstanding first: it is not a separate or extra tax. It's just your normal income tax, paid in advance and in instalments, so you aren't hit with one enormous bill when you're finally assessed.
Who actually has to pay it?
Companies are automatically provisional taxpayers. If you're an individual — a sole proprietor, freelancer, or someone earning rental or significant investment income — you're usually a provisional taxpayer too, because that income isn't taxed through PAYE as it's earned.
The simple test: if you earn meaningful income that isn't a salary with PAYE already deducted, provisional tax almost certainly applies to you. If your only income is a salary and your employer deducts PAYE, it generally doesn't.
The two (and a bit) payment dates
For the usual February tax year-end, there are two compulsory payments and one optional one:
- First payment — end of August. Halfway through the tax year. Based on an estimate of your taxable income for the full year.
- Second payment — end of February. The last day of the tax year. This estimate needs to be accurate, because it's the one SARS measures penalties against.
- Optional third "top-up" — about six months after year-end (end of September). Voluntary, used to settle any shortfall before interest builds up.
How to estimate without over- or under-paying
For the first payment, your safety net is the "basic amount" — broadly, your most recently assessed taxable income. Estimate at least that and you're on safe ground for August.
For the second payment, estimate as accurately as you can from your actual year-to-date numbers. This is exactly why keeping your books current matters: a real estimate beats a hopeful guess. The temptation is to lowball the estimate to ease cashflow — that's precisely where the penalties come from.
What happens if you get it wrong by more than 20%
This is the part the excerpt promised. SARS applies an under-estimation penalty on the second payment:
- If your taxable income is over R1 million, your estimate must be at least 80% of your actual taxable income. Fall short of that — i.e. you were out by more than 20% — and SARS charges a penalty of 20% on the shortfall in tax.
- If your taxable income is R1 million or below, your estimate must be at least 90% of actual income, or at least the basic amount — whichever applies. Miss both and the same 20% penalty applies.
Separately, paying late adds a 10% late-payment penalty plus interest. So there are really two ways to get stung: estimating too low, and paying too late.
How to stay on the right side of it
- Keep your books current so estimates come from real numbers, not guesses.
- Set the cash aside as you earn — provisional tax hurts most when the money's already spent.
- Diarise the end of August and end of February well in advance.
- If your second estimate turns out low, use the September top-up to limit interest.
This is general guidance for South African small businesses, not tax advice — thresholds, dates and penalty rules can change, and your situation may differ. Check the current rules on SARS eFiling, or talk to us before you act.