Provisional tax penalty threshold jumps to R1.8m. What it means for you
A Bill tabled with the mini budget lets more provisional taxpayers use last year's assessed income to avoid SARS's underestimation penalty, but paying your February instalment late could now cost you more.
More provisional taxpayers will be able to avoid SARS's underestimation penalty by simply using last year's assessed income, if Parliament passes a change tabled with the mini budget. The Tax Administration Laws Amendment Bill, 2026 raises the cut-off for that easier test from R1 million to R1.8 million in taxable income (The Citizen).
There is a catch. A second proposal means paying your February instalment late could now cost you an extra penalty, even if your estimate was spot on (Webber Wentzel via Polity).
Who pays provisional tax?
Anyone earning money outside a salary, such as rental income, freelance or business earnings, or investment income above SARS's limits, usually has to pay provisional tax. Companies almost always do. It is income tax paid upfront in two instalments, based on what you expect to earn that tax year (Polity, SARS).
What changes with the R1.8 million threshold?
If your second estimate is too low, SARS charges an underestimation penalty of 20% of the shortfall. How accurate your estimate has to be depends on your taxable income (Polity):
| Taxable income for the year | Current rule | Proposed rule |
|---|---|---|
| Up to R1 million | Estimate must reach 90% of actual income, or your basic amount, whichever is easier | Same |
| R1 million to R1.8 million | Estimate must reach 80% of actual income | Estimate must reach 90% of actual income, or your basic amount, whichever is easier |
| Above R1.8 million | Estimate must reach 80% of actual income | Same |
Source: Webber Wentzel via Polity, The Citizen.
Your basic amount is roughly the taxable income on your last SARS assessment, leaving out certain capital gains and lump sums. It goes up by 8% a year if more than 18 months have passed since the end of that tax year (Polity).
The new threshold would apply to tax years starting on or after 1 March 2026. For individuals, that is the current 2027 tax year, which ends on 28 February 2027. Treasury says the R1 million figure had not kept up with tax bracket changes since 2009/10 (The Citizen).
Why could paying late cost more?
Today, a late second payment attracts a 10% late payment penalty, but a correct estimate still protects you from the underestimation penalty. Under the Bill, if you have not paid the second instalment in full within one month of its due date, SARS would treat your estimate as equal only to what you have actually paid, plus PAYE and qualifying foreign tax credits. That could pull you below the 80% or 90% mark and trigger the 20% penalty on top (Polity).
Webber Wentzel partner Joon Chong says the Bill's wording is unclear and that this is her reading of it. Her worked example is a company with R10 million taxable income and R2.7 million tax for the year ending 28 February 2027 (Polity):
| Current rules | Proposed rules | |
|---|---|---|
| First payment (August 2026) | R1,350,000 paid | R1,350,000 paid |
| Second payment (due 26 February 2027) | R1,350,000 not paid within a month | R1,350,000 not paid within a month |
| 10% late payment penalty | R135,000 | R135,000 |
| Underestimation penalty, after offsetting the late payment penalty | R0 | R27,000 |
| Total penalties | R135,000 | R162,000 |
Source: Webber Wentzel via Polity.
Unlike the threshold increase, this rule would take effect as soon as the law is promulgated (Polity).
Can SARS waive the penalty?
Where the new rule applies, the Bill says SARS may not waive any of the underestimation penalty unless it is satisfied the late payment was not deliberate or due to negligence. The existing ground still applies too: SARS can waive it if your estimate was seriously calculated and not deliberately or negligently understated (The Citizen).
Chong advises taxpayers who pay late to keep proof of why the payment was delayed and what they did to pay it (Polity).
Is this law yet?
No. These are proposals in a Bill tabled in Parliament on 21 October 2026 alongside the Medium Term Budget Policy Statement, and they can still change before it is passed (The Citizen). Until then, the current rules apply.
FAQ
What is the new provisional tax threshold?
The Tax Administration Laws Amendment Bill, 2026 proposes raising it from R1 million to R1.8 million in taxable income. Below that level, your estimate only has to reach 90% of actual income or your basic amount, whichever is easier.
When does the R1.8 million threshold apply?
To tax years starting on or after 1 March 2026. For individuals, that is the 2027 tax year ending 28 February 2027, if Parliament passes the Bill.
What happens if I pay my second provisional tax late?
You already pay a 10% late payment penalty. Under the proposal, if you haven't paid in full within one month of the due date, SARS would treat your estimate as only what you paid, which could add a 20% underestimation penalty.
Is the provisional tax change law yet?
No. It is a proposal in a Bill tabled in Parliament on 21 October 2026 and could still change. The current rules apply until it is passed.