How is SARS interest calculated?

Last Updated on September 21, 2023 by ufiling

SARS, which stands for South African Revenue Service, is the tax authority in South Africa. When it comes to calculating interest related to tax matters, SARS applies specific rules and guidelines. The interest calculation methods may vary depending on the type of tax and the specific circumstances. Here are some general principles to consider:

  1. Late Payment Interest: If you fail to pay your taxes on time, SARS will charge you interest on the outstanding amount. The interest rate is determined by the South African Reserve Bank and is typically linked to the repo rate. The repo rate can change over time, so it’s important to check the current rate when calculating interest. SARS applies interest on a daily compounding basis, which means that the interest is calculated on a daily basis and added to the outstanding amount.
  2. Understatement of Tax Liability: If SARS discovers that you have understated your tax liability, they may charge you additional tax, penalties, and interest. The interest rate for this type of interest is higher than the late payment interest rate. It is also calculated on a daily compounding basis.
  3. Provisional Tax: In South Africa, individuals and companies are required to pay provisional tax in advance, based on estimated taxable income. If the estimated payments are lower than the actual tax liability at the end of the tax year, SARS may charge you interest on the underpayment. The interest rate and calculation method for provisional tax interest are similar to the late payment interest.

It’s important to note that the specific rules and rates for calculating SARS interest may change over time, so it’s always advisable to consult the official SARS website or seek professional tax advice to ensure accurate calculations.

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