Deductibility of input tax on share issue costs in the context of the broad taxation principles

Abstract

Purpose: The purpose of this article is to determine whether input tax on share issue costs incurred should be deductible, in consideration of the broad taxation principles of neutrality, efficiency, flexibility, certainty and simplicity and effectiveness and fairness. Motivation: Share issue costs incurred by companies to raise capital may be large amounts. The denial of input tax deductions on share issue costs incurred adds an additional 15% to taxpayers’ cost to raise capital. Design/Methodology/Approach: A doctrinal research methodology was employed to evaluate the deductibility of input tax on share issue costs incurred in the context of the broad taxation principles. Main findings: This article found that the current denial of input tax on share issue costs incurred does not enhance the broad taxation principles of neutrality, efficiency, certainty and simplicity and effectiveness and fairness. Practical implications: It is suggested that SARS and National Treasury consider a specific deduction for input tax on share issue costs incurred. Novelty/Contribution: This article considers the denial of input tax on share issue costs incurred and whether it enhances or detracts from the broad taxation principles. It is the first study to consider the broad taxation principles in the context of share issue costs.