Understanding Income Tax and Provisional Tax

Taxes can be confusing, but they don't have to be! In this article, we’ll break down Income Tax and Provisional Tax in South Africa in a way that’s easy to understand. Whether you are a salaried employee, a freelancer, or a business owner, knowing how these taxes work will help you stay compliant and avoid penalties.

1. What is Income Tax?

Income Tax is the tax you pay to SARS (South African Revenue Service) on the money you earn. This includes your salary, business profits, rental income, and even interest from investments. The more you earn, the higher your tax rate.

Who Pays Income Tax?

✅ Employees – Tax is automatically deducted from your salary through PAYE (Pay-As-You-Earn).
✅ Freelancers & Business Owners – You need to declare your income and pay tax yourself.
✅ Investors & Landlords – If you earn money from investments or rental properties, SARS expects a share.

How Does It Work?

• Every year, you must submit a tax return to SARS.
  
• SARS calculates if you owe extra tax or if you paid too much (in which case, you get a refund!).
  
• If you earn less than the tax threshold (for 2024/25, R95,750 per year), you don't pay tax.
  

Income Tax Rates (2024/25)

Your tax rate depends on how much you earn. Here’s a basic idea:

Up to R95,750	0% (No tax)
R95,751 - R237,100	18%
R237,101 - R370,500	26%
R370,501 - R512,800	31%
R512,801 - R673,000	36%
R673,001 - R857,900	39%
R857,901+	45%

2. What is Provisional Tax?

Provisional Tax is for people who don’t earn a fixed monthly salary, like freelancers, business owners, and those with multiple income streams. Instead of paying tax once a year, you pay in advance twice a year (or sometimes three times).

Who Pays Provisional Tax?

✅ Freelancers & Business Owners – If you work for yourself and don’t get a salary with PAYE.
✅ Investors & Landlords – If you earn money outside of a job (like rental income, interest from a bank or dividends).
✅ Anyone earning over R30,000 from extra income – Even if you have a salary, but make extra money from a side business.

How Does It Work?

• You estimate your income and pay tax in two installments (August and February).
  
• You may make a third optional payment in September to correct any shortfalls.
  
• This prevents you from getting a huge tax bill at year-end.
  

Example of Provisional Tax Payments:

1️⃣ August – Pay half of your estimated tax.
2️⃣ February – Pay the second half.
3️⃣ September (Optional) – Pay extra if you underestimated your income.

3. Key Differences Between Income Tax & Provisional Tax

Feature	Income Tax	Provisional Tax
Who Pays?	Employees & businesses	Freelancers, business owners, investors
Payment	Once a year	Twice a year (Aug & Feb)
How It Works	Based on salary (PAYE)	Based on estimated income
Examples	Salaried workers	Entrepreneurs, freelancers, landlords

4. Why Is This Important?

✔️ Avoid penalties – SARS charges penalties if you don’t pay on time.
✔️ Better cash flow – Provisional tax helps you plan your payments.
✔️ Stay compliant – Knowing the difference means you can file correctly and avoid surprises.

Need Help with Tax?

At TaxAssist, we specialize in helping individuals and businesses manage their taxes the right way. Whether you need assistance with your income tax returns or setting up provisional tax payments, we’re here to make tax easy for you!

📞 Contact us today for expert advice and hassle-free tax compliance.