The Tax Administration Laws Amendment Bill, 2026 (the Bill) tabled at Parliament proposes two changes to the underestimation penalty for underpayment of provisional tax. The first raises a threshold, so that more taxpayers can rely on the basic amount derived from an earlier assessment. The second changes what happens if the second provisional tax payment is late. 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.

What is provisional tax?

Provisional tax is income tax paid in advance in two instalments during the year of assessment (YA) 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. Companies, regardless of income, would usually be provisional taxpayers.

First change - a higher threshold for the 90% test

Currently, if you are a provisional taxpayer and your actual taxable income is more than ZAR 1-million for the YA, 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.

If your taxable income is ZAR 1-million or less, the test is easier. 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 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.

The Bill raises that ZAR 1-million threshold to ZAR 1.8-million applying to YA commencing on or after 1 March 2026, so the amendment applies to the 2027 YA 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.

Second change - late payment can trigger an underestimation penalty 

Unlike the threshold increase, the payment-related amendment is intended to take effect on promulgation. The wording of the proviso in the Bill is unclear. The following is my interpretation of what I believe the amendment seeks to achieve.

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.

Once that month after 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.

Take a company with a YA ending 28 February 2027, Co A, with no foreign tax rebate. Co A expects taxable income of ZAR 10,000,000 throughout the year, and the tax at 27% is ZAR 2,700,000. It uses ZAR 10,000,000 as the estimated taxable income in both IRP6s for the 2027 YA.

The first payment of ZAR 1,350,000 is made in August 2026. The final ZAR 1,350,000 is not paid by 26 February 2027. Cash flow problems prevent Co A from paying that amount within one month after the due date.

Assume the actual taxable income disclosed in the ITR14 for the 2027 YA is also ZAR 10,000,000.

Under the existing rules, Co A 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 ZAR 1,350,000.

Co A'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 Co A’s declared ZAR 10-million estimate, for purposes of the underestimation penalty, with a deemed estimate equal to the specified aggregate tax amounts. On the wording of the Bill, my view is that the deemed estimate for Co A would be ZAR 1,350,000 paid in August 2026, which is below the normal tax on 80% of Co A’s actual taxable income.

The underestimation penalty under the new proviso is calculated by comparing 

(i) normal tax on 80% of Co A's actual taxable income, being 27% × 80% × ZAR 10,000,000 = ZAR 2,160,000; 

With

(ii) the aggregate tax for the year paid within one month after the second provisional due date, ZAR 1,350,000. 

The shortfall is ZAR 2,160,000 − ZAR 1,350,000 = ZAR 810,000. The calculated penalty is therefore 20% × ZAR 810,000 = ZAR 162,000.

The 10% late payment penalty on ZAR 1,350,000 is ZAR 135,000. 

Paragraph 20(2B) provides for any 20% underestimation penalty to be reduced by the 10% late payment penalty. 

After the amendment takes effect, Co A has a 10% late payment penalty of ZAR 135,000 and 20% underestimation penalty of ZAR 162,000 – ZAR 135,000 = ZAR 27,000. The total penalties are ZAR 162,000.

Grounds for remission of penalties

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 ZAR 2,000, 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.

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.

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.

Written by Joon Chong, Partner at Webber Wentzel