Private Portfolio -Provisional tax payers are next
Now that the tax year has closed for individuals who are subject to the pay as you earn tax dispensation, it is the turn of the provisional tax payer.
This may be an opportune time to repeat and draw attention to their situation albeit that these issues were extensively canvassed by tax practitioners at the beginning of this tax year when the tax amendments took effect.
Provisional tax payers have become subject to onerous conditions and failure to comply with them is sanctioned with severe penalties and interest.
The amendments to the tax treatment of provisional tax payers came into effect on 1 January this year. Before that date a provisional tax payer could use the last assessed income figures as a bottom line to base provisional tax payments on without incurring the wrath of the authorities.
When estimates and payments fall below this threshold, questions were raised. This procedure has changed drastically. From now on if provisional tax payments made turn out to be less than 80% of the eventual actual tax payable, such underestimated provisional payments will attract penalties.
This extends to the first as well as the second provisional tax payment. This means that the first provisional tax payment must at least be equal or more than 80% of half of the final tax liability for that year and the same goes for the second provisional tax payment.
So, provisional tax payers that have an extremely fluctuating or seasonal income flow face a pretty daunting task and may need to be blessed with psychic capabilities to comply with these requirements.
The penalties involved can be up to 100% of the amount that was underestimated. Together with the penalty there is also interest payable at a rate of 20% per year on any outstanding amount until it is settled.
However, this is not where the story ends. Apart from the penalties and interest levied in events of underestimations, further punitive measures were introduced to sanction late payments as well as late filings of returns.
For each day a provisional tax return is outstanding after its due date, an amount of N$100.00 is payable. The late payment of a provisional tax payment also carries with it a penalty of 10% per month of the amounts outstanding for every month or part thereof such an amount remains outstanding.
As mentioned before, provisional tax payers are not to be envied. They can be in for a rough ride if they get it wrong or do nothing at all.