On 17 October 2018, National Treasury (NT) and the South African Revenue Service (SARS), appeared before Parliament’s Standing Committee on Finance (SCoF) to provide it with a further update regarding some of the proposals contained in the 2018 draft Taxation Laws Amendment Bill (Draft TLAB), that was published earlier this year. One of the key proposals related to the doubtful debt provisions in s11(j) and s11(jA) in the Income Tax Act, No 58 of 1962 (Act), regarding which NT received substantial input from the public. The proposed amendments to these provisions were also robustly debated during the workshops hosted by NT and SARS for all stakeholders, which were well attended by members of the tax profession, on 4 and 5 September 2018. We discussed the proposed amendments in our Tax and Exchange Control Alert of 3 August 2018.
In terms of the presentation document reflecting NT and SARS’ feedback to the SCoF (Feedback Document), it states that following the workshops that took place on 4 and 5 September 2018, NT and SARS held a further meeting with stakeholders on 28 September 2018, to discuss the proposed amendments in the draft TLAB, based on the comments that were received by NT and SARS during the consultation process. Pursuant to this further consultation, NT amended the proposed amendments, as they were contained in the Draft TLAB. Pursuant to this further amendment, the Feedback Document proposes that the doubtful debt provisions in s11(j) of the Act will now provide for the following:
If a taxpayer is applying IFRS9 for financial reporting purposes to determine a loss allowance relating to impairment in respect of debt:
- 40% of the IFRS 9 loss allowance relating to impairment that is measured at an amount equal to the lifetime expected credit loss plus bad debt written off that does meet the tax write off requirements; and
- 25% of the difference between the IFRS 9 loss allowance relating to impairment and the IFRS 9 loss allowance in respect of which the 40% tax allowance, is permitted.
If a taxpayer is not applying IFRS 9 for financial reporting purposes, an age analysis of debt should be used, which will work as follows:
- 40% of the face value of doubtful debts that are at least 120 days past due date will be allowed as a deduction; and
- 25% of the face value of doubtful debts that are at least 60 days past due date but excluding doubtful debts that are at least 120 days past due date will be allowed as a deduction.
Further, it is proposed that on application by a taxpayer, SARS may issue a directive to that taxpayer that the abovementioned 40% be increased to a percentage not exceeding 85% after taking into account the following proposed set of criteria:
- the history of the debt owed to that taxpayer, including the number of repayments not met, and the duration of the debt;
- steps taken to enforce repayment of the debt;
- the likelihood of the debt being recovered;
- any security available in respect of that debt;
- the criteria applied by the taxpayer in classifying debt as bad; and
- such other considerations as the Commissioner for SARS may deem relevant.
The above proposals were included in the Taxation Laws Amendment Bill (TLAB) that was tabled in Parliament on Wednesday, 24 October and these amendments will come into force once the TLAB is passed by Parliament, signed by the President and published in the Government Gazette.