Should SOEs get a tax break for fruitless and wasteful expenditure?
Fruitless and wasteful expenditure at state-owned entities can run into billions each year, resulting in a large and possibly unjustified deduction, writes Tertius Troost
In the recently published draft Taxation Laws Amendment Bill, the Treasury has made it clear that it will be joining efforts to ensure proper governance of public entities as it proposes that no income tax deduction will be allowed for fruitless and wasteful expenditure. Fruitless and wasteful expenditure is defined in the Public Finance Management Act (PFMA) as expenditure that was made in vain and would have been avoided had reasonable care been exercised. Examples include interest and penalties on overdue accounts‚ litigation and claims, cancellation fees for accommodation and ineffective implementation of hardware. Section 11(a) of the Income Tax Act, colloquially referred to as the general deduction formula, makes provision for the deduction of expenditure actually incurred in the production of income, provided that such expenditure is not of a capital nature. Conversely, Section 23 of the Income Tax Act disallows certain expenditure, even when it meets all the requirements of ...
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