The Treasury building in Pretoria.Picture: RUSSELL ROBERTS
The Treasury building in Pretoria.Picture: RUSSELL ROBERTS

Fruitless and wasteful expenditure by public entities will no longer qualify for a deduction for tax purposes if proposals by the Treasury are adopted.

The measure is aimed at promoting proper governance of public entities and to encourage accountability, Treasury chief director of legal tax design Yanga Mputa told members of parliament’s finance committee on Thursday during a briefing on the Draft Taxation Laws Amendment Bill.

"Generally, the Income Tax Act makes provision for the deduction of expenditure actually incurred in the production of income, provided such expenditure is not of a capital nature," Mputa explained.

"The Income Tax Act, however, limits the deductibility of certain types of expenditure, including expenditure that relates to corrupt activity as defined in the Prevention and Combating of Corrupt Activities Act or expenditure that constitutes a fine or penalty imposed as a result of an unlawful activity.

"However, the limitation of deductions in the Income Tax Act does not cover fruitless and wasteful expenditure."

The proposed amendment would mean any expenditure determined and reported by a public entity as fruitless and wasteful, as defined in the Public Finance Management Act, will not be allowed as a deduction in the determination of the entity’s taxable income.