Abstract
The South African government introduced Broad-Based Black Economic Empowerment (B-BBEE) as a means of redressing the economic imbalance created by Apartheid. The purpose of B-BBEE is to ensure economic participation by previously disadvantaged groups. South African companies incur costs relating to BBBEE activities with the intention of earning B-BBEE points. These companies will then claim such expenditure as a deduction for income tax purposes. The South African Act, No. 58 of 1962, includes diverse provisions relating to the deductibility of specific expenditures. The Act in its present form does not contain specific provisions relating to the deductibility of B-BBEE expenditure incurred by companies for purposes of earning and/or increasing their B-BBEE points. This paper acknowledges the existence of the B-BBEE programme, although from an income tax perspective, the deductibility of the expenditure relating to the programme by companies is not that clear. The purpose of this paper is to undertake an in-depth analysis of the implications of the BBBEE programme for companies, and to what extent such companies will be allowed to deduct B-BBEE expenditure incurred in respect of enterprise and supplier development for income tax purposes. On this basis, it must be determined if any BBBEE expenditure is incurred in the production of income, and that it is not of a capital nature. The paper ultimately concludes that it will depend on certain factors whether a specific B-BBEE expenditure will be deductible for a company, and that the onus of proving the deductibility thereof lies with the taxpayer. Therefore, it is recommended that clear guidelines should be provided to ensure that taxpayers are aware of the procedures to follow if they are to claim a deduction for their incurred B-BBEE expenditure.
M.Com. (South African and International Taxation)