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Some provisions of the VAT Act should not apply where business rescue proceedings have been instituted by a company

5th February 2013


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With the 2013 budget speech fast approaching, the South African Institute of Chartered Accountants (SAICA) calls for the Minister of finance, Mr Pravin Gordhan, to review certain provisions related to the Value-added Tax Act, No 89 of 1991 (“the VAT Act”) pertaining to companies that have already implemented business rescue proceedings.


SAICA proposes that the provisions of Section 22(3) of the VAT Act should not apply in circumstances where business rescue proceedings have been instituted by a company.  “In these circumstances, it should only come in effect once the business rescue proceedings have failed and the company is placed in liquidation”, says Piet Nel, SAICA’s Project Director: Tax.

Legal nature


Section 22(3) of the VAT Act requires a vendor, being a debtor, who previously claimed an input tax deduction in respect of goods or services supplied to the vendor, but the vendor has not paid the full consideration within a period of 12 months from the tax period in which the vendor claimed an input tax deduction, to account for output tax in respect of the amount still outstanding. The same situation applies where a vendor entered into a written contract in which it has to make payment by a specific date.

Section 22(4) of the VAT Act provides that the vendor may, after having accounted for output tax in terms of this provision, claim an input tax deduction if the vendor subsequently repaid all or part of the amount outstanding. The input tax deduction will be equal to the tax fraction of the amount subsequently repaid.

Factual description

Nel explains that the purpose of business rescue proceedings is to facilitate the rehabilitation of companies which are in financial distress. “Its objective is to restructure the affairs of the company in order to secure the continuing existence of the company or to secure the best possible returns for the creditors of the company that would ordinarily result from the liquidation of the company.”

It is most likely that companies which are placed in business rescue have debts owing to their suppliers for periods in excess of or very close to the 12 month period.  “The value of these supplies may be significant and being obliged to account for output tax on these outstanding amounts may result in the failure of any otherwise viable business rescue attempt,” Nel concludes.



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