Getting out what you put in…A recap on the deductibility of input tax

Monday, 31 July 2017


This article is based on tax law for the tax year ending 28 February 2018.

Author: Varusha Moodaley

An input tax deduction may be claimed when VAT is incurred on goods and services acquired for the purpose of consumption, use or supply in the course of making taxable supplies.

The entitlement of a vendor to claim input tax deductions in respect of expenses incurred is generally not disputed where a vendor makes wholly taxable supplies. VAT is therefore generally not considered to be a large component of a business’s cost base as most VAT registered businesses will be entitled to claim a credit or refund of VAT paid to the extent that they conduct an enterprise that makes taxable supplies.

There has, however, been a great deal of controversy and uncertainty surrounding the claiming of VAT input credits, particularly where mixed taxable and non-taxable supplies are made, and also in the context of expenses relating to corporate actions. This uncertainty regarding the deductibility of input tax credits in certain instances has created a VAT risk for many vendors. This article will briefly provide an overview of the differing views held by the courts and the South African Revenue Service (SARS), and in so doing, will highlight the relevant considerations when determining whether the VAT incurred for purposes of certain corporate actions may qualify as an input tax deduction. 

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