1900. Provisional tax and paragraph 19(3)
For every provisional tax period, a provisional taxpayer is required to submit an estimate to SARS of
taxable income for that particular year of assessment. For the first provisional tax payment, which is
due six months into a taxpayer’s year of assessment, this estimate may not be less than the taxpayer’s
“basic amount”. This is in accordance with paragraph 19(1)(c) of the Fourth Schedule to the Act No.
58 of 1962. The taxpayer’s “basic amount”, which is defined in paragraph 19(1)(d), is essentially the
taxpayer’s taxable income as assessed by SARS for the latest preceding year of assessment, uplifted
by 8% per annum.
Paragraph 19(3) empowers SARS to call upon a taxpayer to either justify their provisional tax
estimate or to furnish SARS with further information.
The taxpayer is entitled to respond to the enquiry raised by SARS and is afforded the opportunity to
satisfy SARS that the estimate is in fact reasonable in relation to the taxable income likely to be
earned for that year of assessment.
If, based on the taxpayer’s response to its enquiry, SARS believes that the taxpayer’s estimate is too
low, it may exercise its discretion to increase the taxpayer’s estimate to an amount that it considers to
be reasonable. SARS must, however, have sufficient information available to substantiate this
increase. This revised estimate will be final and conclusive and SARS must notify the taxpayer of a
revised date for payment of the additional amount.
It is important to note that while SARS is required to pay taxpayers interest on provisional tax
payments where these exceed the final tax liability for that tax year, this interest only starts running 6
or 7 months after the end of the taxpayer’s year of assessment, so that any overpayment of provisional
tax is financially prejudicial to the taxpayer. This interest is taxable and must be disclosed by the
taxpayer in the tax year that it accrues.
Interpretation Note 1 (dated 30 November 2001) replaced Circular Minute 22 of 1998 and provides
guidelines on the application of paragraph 19(3).
The Circular Minute had provided that paragraph 19(3) would only be invoked by SARS where the
revised taxable income exceeded the “basic amount” by R2 million in the case of a company and
R1,5 million in the case of an individual. Interpretation Note 1 on the other hand, is silent on when
paragraph 19(3) will be invoked by SARS and this appears to have prompted regional offices of
SARS to utilise paragraph 19(3) on a regular basis in an attempt to increase its cash flows and make
up the apparent shortfall in its revenue collections.
So, where a taxpayer (with only 5 to 6 months financial results available to him) bases his first
provisional tax estimate on his escalated “basic amount” he is almost assured of receiving a paragraph
19(3) enquiry from SARS. And, if SARS is of the view that the taxpayer should pay tax on a higher
estimate, the taxpayer will not earn interest on the provisional tax paid until 6 or 7 months after the
end of the year of assessment. Even where the escalated basic amount is exceeded in the taxpayer’s
estimate, SARS will frequently issue a notice asking why the estimate is not higher still.
Paragraph 19(3) was originally introduced to equip SARS with a mechanism by which to combat the
mischief of taxpayers understating their provisional tax payments. But since paragraph 19(1)(c)