However, on the other extreme of being taxed monthly is having tax levied only once on assessment. The provisional tax system tries to cater for a middle road by spreading the tax liability from such non-employment income in three separate payments. This allows both SARS and taxpayers to better plan and comply with their tax obligations.

Nevertheless, timing of payments under the provisional tax system are also important as it feeds into the fiscus. National Treasury plans its budget and cash flow around this. Given this, there are various potential penalties applicable for the failure to comply with one’s provisional tax obligations, including the underestimation, underpayment or late payment of provisional tax. In particular the following penalties may apply:

• First period or payment: 10% penalty for late payment where payment is usually due on 31 August of each year.
• Second period or payment: 10% penalty for late payment where payment is usually due on 28 February each year.
• Second period or payment: 20% penalty on the underestimation of the provisional tax estimate.
• Third period or payment: No penalties.

In relation to the underestimation penalty, acceptable tolerances are designed with reference to whether the taxpayer’s actual taxable income is more or less than R1 million. Put simply the “margin for error” in estimating provisional tax is greater if one’s actual taxable income is more than R1 million compared to less than R1 million.

Therefore in order for provisional tax penalties to be triggered, a taxpayer must first underestimate their taxable income outside acceptable tolerances. However, if the taxpayer submits an estimate that is within the acceptable tolerance but pays no provisional tax, the underestimation penalty cannot be imposed. The only penalty applicable in these cases is a late payment penalty of 10% which is less than the 20% underestimation penalty.

It has therefore been proposed that, with effect from 25 February 2026, timely payment of the estimated amount must be made or otherwise taxpayers will not be able to stand behind the accurate estimate. In other words, if one makes an estimate within the acceptable tolerances but pays the amount owing late, then the penalty will likely be increased.

The proposed amendments indicate that the fiscus is focused on cash flow. Effective implementation of budgets and plans depends on it and this penalty aligns with such intentions.

On the lighter side, the R1 million limit referenced in paragraph 20 of the Fourth Schedule for relying on amounts based on previous assessments, and not current estimates, will be increased to R1,8 million.