Provisional Tax is an advance payment of income tax and taxpayers are liable to pay provisional tax in quarterly instalments. It is due within 25 days after the end of each quarter of that year of assessment. For instance, Provisional Tax for the third quarter, January-March 2020, is due by 25 April 2020.
Section 84 of the Taxation Act stipulates that all persons whose income is subject to income tax are liable to pay Provisional Tax.
Taxpayers liable to pay Provisional Tax are required to submit a tax return to the Malawi Revenue Authority (MRA) not later than 25 days in the first quarter.
The return must include the following details; an estimate of the chargeable income; an estimate of the tax due on the chargeable income and; a quarterly estimate of tax due on the chargeable income.
It is expected that the entire amount estimated as Provisional Tax would be paid by the end of the taxpayer’s accounting period. In case of a shortfall, after allowing for credit of all taxes paid for the year of assessment, it should be paid within 180 days from the end of taxpayer’s business year. Failure to pay provisional tax attracts penalties.
Provisional tax shall not apply to an individual whose taxable income for the year of assessment is estimated not to exceed the tax-free threshold, which is currently at K540, 000 per annum.
It shall also not apply to income from pension or employment or both where Pay As You Earn (PAYE) has been charged even though the amount exceeds the tax-free threshold.
Provisional tax is advantageous to both taxpayers and the Government. It allows a taxpayer to settle the tax liability in quarterly instalments, thereby relieving him the burden of paying lump sums at the end of the year. It also accords the government a steady flow of revenue.
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