Here are the proposed changes to provisional tax and what they mean for you

The Tax Administration Laws Amendment Bill, 2026, tabled in Parliament, proposes two changes to the underestimation penalty for underpaying provisional tax.

Provisional tax is income tax paid in advance in two instalments during the year of assessment based on an estimate of what you expect to earn in that year. Anyone with income outside a salary, such as rental income, freelance or business earnings, or investment income above the specified ranges, would typically be a provisional taxpayer.

The explanatory summary of the Tax Administration Laws Amendment Bill, 2026 was tabled before parliament on 21 October 2026 alongside the Medium Term Budget Policy Statement (MTBPS).

First proposed change to provisional tax

Partner at law firm Webber Wentzel Joon Chong said the first change proposed raises a threshold, so that more taxpayers can rely on the basic amount derived from an earlier assessment.

“Currently, if you are a provisional taxpayer and your actual taxable income is more than R1 million for the year of assessment, your estimated taxable income for the second provisional tax must reach at least 80% of your actual taxable income in your annual tax return to avoid triggering the underestimation penalty.

“If the estimate falls below that level, the penalty is 20% of the shortfall between normal tax on 80% of actual taxable income, after applicable rebates, and the total employees’ tax (PAYE) and provisional tax paid by year-end.”

What the first proposed change to provisional tax means for you

According to Chong, if a taxpayer’s taxable income is less than R1 million, the test becomes easy.

“Your estimate needs to reach 90% of actual taxable income, or your basic amount, whichever is less demanding. The basic amount is broadly your taxable income as last assessed by the South African Revenue Service (Sars), adjusted to exclude certain capital gains and lump-sum amounts, and increased by 8% a year if more than 18 months have passed since the end of that assessed year.”

She said the amendment would raise the R1 million threshold to R1.8 million, applying to the year of assessment commencing on or after 1 March 2026, so the amendment applies to the 2027 year of assessment for individuals.

“The increase updates the threshold to reflect movements in personal income tax brackets since 2009/10. It allows more provisional taxpayers to use the basic amount based on their previous assessment, rather than having to calculate estimated taxable income accurately to reach at least 80% of their actual taxable income for the current year.”

Simply put, the proposed change would raise the income threshold from R1 million to R1.8 million, making it easier for more provisional taxpayers to avoid penalties for underestimating their tax.

Second proposed change to provisional tax

The second proposed change focuses on what happens if the second provisional tax payment is late, said Chong.

A correct estimate on the IRP6 would no longer, on its own, protect a taxpayer who fails to pay the required amount in full within one month of the payment deadline.

“The new proviso changes what counts as the final or last estimate for purposes of the underestimation penalty if the required second provisional tax payment is not made in full within one month of its due date,” she said.

“Once that month after the due date passes without full payment, the taxpayer is deemed, for purposes of paragraph 20(1) of the Fourth Schedule, to have submitted a final or last estimate equal to the aggregate payments, PAYE deducted and qualifying foreign tax amounts as contemplated in paragraph 21 or 23 in respect of the relevant estimates submitted by the end of that period.”

Example for companies

Chong used the example of a company with a year of assessment ending on 28 February 2027, with no foreign tax rebate. The company expects taxable income of R10 million throughout the year, on which tax at 27% would amount to R2.7 million.

The company then uses R10 million as the estimated taxable income in both IRP6s for the 2027 year of assessment.

“The first payment of R1.3 million is made in August 2026. The final R1.3 million is not paid by 26 February 2027. Cash flow problems prevent the company from paying that amount within one month after the due date,” she said.

“Under the existing rules, the company would not incur an underestimation penalty because the estimate disclosed in its second IRP6 is at least 80% of its actual taxable income. It would, however, incur a 10% late-payment penalty on the unpaid R1.3 million.

“The company’s failure to pay its second provisional tax in full within one month of the due date triggers the deeming rule in the new proviso to paragraph 20(1). My interpretation of the proviso, if enacted in its current form, is that the amendment would replace the company’s declared R10 million estimate, for purposes of the underestimation penalty, with a deemed estimate equal to the specified aggregate tax amounts.”

Grounds for remission of penalties

According to Chong, the 10% late-payment and 20% underestimation penalties are percentage-based penalties. Section 214 of the Tax Administration Act 28 of 2011 (TAA) sets out the procedures for imposing these penalties, while sections 217(3) and 218 provide grounds for remission.

Section 217(3) provides for Sars to remit all or part of a penalty for a first incidence of non-compliance, or where the amount involved is less than R2 000, provided reasonable grounds exist and the non-compliance has been remedied.

Section 218 requires Sars to remit all or the relevant part of a penalty if satisfied that specified exceptional circumstances rendered the taxpayer incapable of complying.

Underestimation penalty

“The underestimation penalty also has specific remission grounds under paragraph 20(2) of the Fourth Schedule. Where the new deeming rule applies, the Bill provides that Sars may not remit any portion of that penalty unless satisfied that the failure to pay in full was not due to an intention to postpone payment or negligence by the taxpayer,” said Chong.

“The above is in addition to the existing grounds of remission that the Commissioner is satisfied that the estimated taxable income for the second IRP6 was seriously calculated with due regard to relevant factors and not deliberately or negligently understated.

“Where payment is delayed, taxpayers should retain evidence of the reasons for the delay and the steps taken to secure payment, to support any request for remission.”