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Nasty penalties for provisional taxpayers

2008-12-16

CC's, business owners etc. face penalties of up to 20% if provisional tax is

not within 80% of the final amount.

In terms of the Revenue Laws Second Amendment Bill there could be penalties if your first and second provisional tax payments are less than 80% of the final tax due.

Currently a provisional taxpayers' second payment is based on an estimate of taxable income or on the "basic amount". If the estimate of taxable income is less than 90% of the taxable income as finally determined and it is also less than the basic amount (essentially the taxable income for the last year that was assessed), the taxpayer will be subject to penalties.

While the exact provisions may not have been easy to grasp, taxpayers always knew or at least could take comfort that if they based their second provisional payment on the basic amount they would not be subject to penalties.

In terms of the Second Amendment Bill, if the second payment is based on an amount that is less than 80% of the actual final taxable income then a penalty of 20%, based on the difference between the tax on the estimate and 80% of the final tax due, will be levied.

Sars may remit any penalty if they are satisfied that the estimate was not deliberately or negligently understated and was seriously calculated.

Taxpayers should therefore start ensuring that the second provisional payment or the estimate upon which it is based is reasonably accurate, and at the very least it must provide a result that is equal to 80% of the final taxable income.

This exercise should begin sooner rather than later, as the legislation is effective for years of assessment ending on or after January 1 2009. For most taxpayers this is effectively from February 28 2009, or thereafter.

In recognition of the burden on taxpayers, and considering the legislation has not yet been enacted, Sars has issued a letter to South African Institute of Chartered Accountants, informing them that they will take a more relaxed attitude for the second provisional tax payments that are due on or before February 28 2009.

In this letter, Sars has stated that if the provisional payments (up to February 28 2009) are based on estimates that are equal to at least 90% of the taxable income for the year or the basic amount, Sars will accept that they have been seriously calculated and have not been negligently understated. The penalty that would otherwise have been imposed will, therefore, be waived.

To conclude, at least Sars have recognised the difficulties that taxpayers will face and have effectively granted a grace period. However, where your year of assessment ends after February 28 2009, you would be well advised to start ensuring that your taxable income is less of an estimate and more of an accurate assessment and such accuracy must exist on the last day of the year of assessment.

At myfinance-online.co.za we can help CC's, small and medium businesses, etc. to accurately calculate and complete their provisional tax returns by assisting them with accurate bookkeeping services as well as monthly records. Please contact us for assistance in this regard.

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