Most taxpayers, and all tax practitioners, deal with provisional tax twice a year. The Tax Administration Laws Amendment Bill (the TALAB) published on 21 October 2026 changes the underestimation penalty on the second provisional tax payment. In this article, I briefly explain the change.
The two provisional tax payments
Provisional tax works on two payments. Each payment rests on an estimate of taxable income for the year. The first payment is only subject to a late payment penalty. No underestimation penalty applies to the first estimate. The reason, arguably, is that the first payment falls early in the year, and a lot can still happen in the remaining six months. The legislation therefore allows more room for error at that stage.This does not mean a taxpayer may make any estimate it wishes. The estimate must still reflect, on a reasonable basis, the taxable income the taxpayer expects for the year. SARS can and does ask for justification and supporting documentation for the calculation. Practitioners know this as the paragraph 19(3) request.
The position differs at the second payment. By the end of the year the taxpayer should have a good idea of its profits. An underestimation penalty therefore applies if the taxpayer underestimates its taxable income. The penalty calculation depends on whether actual taxable income exceeds a threshold. (The TALAB increases this threshold from R1 million to R1.8 million for years of assessment commencing on or after 1 March 2026.)
The new deeming rule
The underestimation penalty itself remains as before. The change lies in how the IRP6 estimate and the payment interact. Under the previous rules, a taxpayer with taxable income above the threshold avoided the underestimation penalty if its estimate was at least 80% of actual taxable income. If the taxpayer then did not pay the tax according to the IRP6, SARS could only impose the 10% late payment penalty. An accurate return without the matching payment therefore cost 10%.
The TALAB changes this. If the estimate on the IRP6 falls within the acceptable range, but the taxpayer does not pay the amount in full within one month after the due date, the change in the Bill deems the last estimate to be equal to the payments the taxpayer has made by the end of that month. The due date is normally the end of the year of assessment. The change will already come into effect from 25 February 2026.The consequence is that SARS calculates the underestimation penalty on what the taxpayer actually paid, irrespective of the figure on the IRP6. A taxpayer can no longer file an acceptable estimate and then pay a different amount, or nothing. The existing relief against a double penalty remains. The late payment penalty levied on the same amount reduces the underestimation penalty.
Remission of the penalty
The second part of the amendment deals with remission. Where SARS levies the underestimation penalty on this basis, the Commissioner may only remit it if satisfied that the failure to pay was not intentional or due to negligence.In my view, this will likely be a difficult test to meet. A taxpayer should have paid the provisional tax by the due date. The deeming rule only applies if the taxpayer has had a further month and still has not paid. A taxpayer in that position will struggle to show that the failure was neither intentional nor negligent. As I have noted before in relation to percentage-based penalties, I expect this to be a penalty that SARS does not easily remit.
Take-home message
It is no longer enough to file an IRP6 with an acceptable estimate. The taxpayer must also pay the provisional tax according to that estimate, and must do so within one month after the due date. If it does not, the deemed estimate exposes it to an underestimation penalty and not only a late payment penalty. Remission will be difficult. Where a client faces this penalty or needs to prepare a remission request, I can assist with assessing the exposure and the grounds available.
