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Value-Added Tax Act, 1991 (Act No. 89 of 1991)

Part II - Value-Added Tax

22. Irrecoverable debts

 

(1) Subject to subsection (6), where a vendor—
(a) has made a taxable supply for consideration in money; and
(b) has furnished a return in respect of the tax period for which the output tax on the supply was payable and has properly accounted for the output tax on that supply as required under this Act; and
(c) has written off so much of the said consideration as has become irrecoverable,

the vendor may make a deduction in terms of section 16(3) of that portion of the amount of tax charged in relation to that supply as bears to the full amount of such tax the same ratio as the amount of consideration so written off as irrecoverable bears to the total consideration for the supply, the deduction so made being deemed for the purposes of the said section to be input tax: Provided that—

(i) where tax charged in respect of a supply of goods under an instalment credit agreement has become irrecoverable, any deduction in terms of section 16(3) as provided for in this section, shall be restricted to the tax content of the amount which has become irrecoverable in respect of the cash value of such supply, as applicable in respect of that agreement in terms of section 10(6);
(ii) the amount which has become irrecoverable in respect of such cash value shall be deemed to be an amount equal to the balance of the cash value remaining after deducting therefrom so much of the sum of the payments made by the debtor in terms of the said agreement as, on the basis of an apportionment in accordance with the rights and obligations of the parties to the said instalment credit agreement, may properly be regarded as having been made in respect of the cash value;
(iii) the said tax content shall be an amount calculated by applying the tax fraction, as applicable at the time the supply under the said instalment credit agreement was in terms of section 9(3)(c) deemed to have taken place, to the amount deemed as aforesaid to be irrecoverable in respect of such cash value;
(iv) a vendor who has transferred an account receivable at face value on a—
(aa) non-recourse basis to any other person, shall not make any deduction in respect of such transfer in terms of this subsection; or
(bb) recourse basis to any other person, may make a deduction in terms of this subsection only when such account receivable is transferred back to him and he has written off so much of the consideration as has become irrecoverable:

Provided further that the deduction provided for in this subsection shall not be made in terms of section 16(3)—

(i) in respect of any amount which has become irrecoverable in respect of an instalment credit agreement, if the vendor has repossessed or is obliged to take possession of the goods supplied in terms of that agreement; or
(ii) in the case of any vendor who is required to account for tax payable on a payments basis in terms of section 15, except in relation to any supply made by him to which section 9(2)(b) or section 9(3)(c) applies.

 

(1A) Where a vendor—
(a) has made a taxable supply for consideration in money; and
(b) has furnished a return in respect of the tax period for which the output tax on the supply was payable (at the rate of tax referred to in section 7(1)) and has properly accounted for the output tax on that supply as required in terms of this Act; and
(c) has transferred the account receivable relating to such taxable supply at face value to another vendor (hereinafter referred to as the recipient) on a non-recourse basis on or after the date of promulgation of the Taxation Laws Amendment Act, 1997,

and any amount of the face value (excluding any amount of finance charges or collection costs) of such account receivable has been written off as irrecoverable by such recipient, such recipient may make a deduction in terms of section 16(3) of an amount equal to the tax fraction (being the tax fraction applicable at the time such taxable supply is deemed to have been made) of such face value (limited to the amount paid by the recipient in respect of such face value) written off by him, the deduction so made being deemed for the purposes of the said section to be input tax.

 

(2) Where any amount in respect of which a deduction has been made in accordance with subsection (1) is at any time wholly or partly recovered by the vendor, or becomes recoverable by him by virtue of the reassignment to him of the underlying debt, that portion of the amount of such deduction as bears to the full amount of such deduction the same ratio as the amount of the irrecoverable debt recovered or reassigned bears to the debt written off shall be deemed to be tax charged in relation to a taxable supply made during the tax period in which the debt is wholly or partly recovered or assigned to such vendor.

 

(3) Subject to subsection (3A), where a vendor who is required to account for tax payable on an invoice basis in terms of section 15—
(a) has made a deduction of input tax in terms of section 16(3) in respect of a taxable supply of goods or services made to him; and
(b) has, within a period of 12 months after the expiry of the tax period within which such deduction was made, not paid the full consideration in respect of such supply,

an amount equal to the tax fraction, as applicable at the time of such deduction, of that portion of the consideration which has not been paid shall be deemed to be tax charged in respect of a taxable supply made in the tax period  following the expiry of the period of 12 months: Provided that—

(i) the period of 12 months shall, if any contract in writing in terms of which such supply was made provides for the payment of consideration or any portion thereof to take place after the expiry of the tax period within which such deduction was made, in respect of such consideration or portion be calculated as from the end of the month within which such consideration or portion was payable in terms of that contract;
(ii) where—
(aa) the estate of a vendor is sequestrated, whether voluntarily or compulsorily;
(bb) the vendor is declared insolvent;
(cc) the vendor has entered into a compromise in terms of section 155 of the Companies Act, 2008 (Act No. 71 of 2008), or a similar arrangement with creditors; or
(dd) the vendor ceases to be a vendor as contemplated in section 8(2),

within 12 months after the expiry of the tax period within which that deduction was made, not paid the full consideration, the vendor must account for output tax in terms of this section equal to that portion of the consideration which has not been paid—

(AA) at the time of sequestration, declaration of insolvency or the date on which the compromise or the arrangement or similar arrangement was entered into; or
(BB) immediately before the vendor ceased to be a vendor as contemplated in section 8(2); or
(iii) paragraph (ii) shall not be applicable where a vendor has already accounted for tax payable in accordance with this subsection.

 

(3A) Subject to subsection (6)(a), subsection (3) shall not be applicable in respect of a taxable supply made by a vendor which is a member of a group of companies, to another vendor which is a member of the same group of companies for as long as both vendors are members of the same group of companies.

 

(4) If a vendor who has accounted for tax payable in accordance with subsection (3) at any time thereafter pays any portion of the consideration in respect of the supply in question, he may in terms of section 16(3) make a deduction of input tax of an amount equal to the tax fraction, as applicable at the time of the deduction contemplated in paragraph (a) of the said subsection (3), of that portion of the consideration so paid.

 

(5) [Subsection (5) deleted by the Revenue Laws Amendment Act, 2003]

 

(6)
(a) Where a vendor which is a member of a group of companies makes a taxable supply to another vendor which is a member of the same group of companies, the vendor who made the taxable supply may not make a deduction in terms of subsection (1) read with section 16(3) of any amount of tax that has become irrecoverable for as long as both vendors are members of the same group of companies.
(b) For the purposes of paragraph (a) and subsection (3A), a "group of 45 companies" means a group of companies as defined in section 1 of the Income Tax Act if any other company would be part of the same group of companies as that company if the expression "at least 70 per cent of the equity shares of" in paragraphs (a) and (b) of that definition were replaced by the expression "100 per cent of the equity shares of".