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South Africa: Proposed changes to doubtful debt allowance provisions and lease receivables

South Africa: Changes to doubtful debt allowance

A proposal in draft legislation (released 31 July 2020) is intended to resolve an inconsistency regarding the determination of the doubtful allowance that is available in respect of impaired trade receivables—that is, inconsistent treatment between taxpayers who apply International Financial Reporting Standard 9 – Financial Instruments (IFRS 9) and those that do not apply IFRS 9.


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Under current rules, for taxpayers applying IFRS 9, allowances on accrued lease receivables are allowable.

The inconsistency arises due to the provisions of IFRS 9 that take into account any security that is given in respect of debt when calculating the lifetime-expected credit loss (LECL)—whereas  taxpayers not applying IFRS 9 calculate their allowance based on the debt in arrears, which does not take into account any security given in respect of the debt.

The 2020 Draft Taxation Laws Amendment Bill (31 July 2020), sets out draft provisions that would remedy this inconsistency. In this regard, it is proposed that an allowance granted taxpayers that do not apply IFRS 9 would be calculated based on the amount of debt after taking into account any security available in respect of that debt. Also, the change would allow taxpayers applying IFRS 9 for financial reporting purposes to claim a doubtful debt allowance in respect of lease receivables that have accrued to them, but not in respect of future lease amounts for years of assessment beginning on or after 1 January 2021. Previously an allowance has not been claimable on lease receivables, whether they had accrued to the taxpayer or not.

Currently the South African Revenue Service allows taxpayers to submit a directive application whereby the percentage allowable may be increased to up to 85% (in certain circumstances).

Read an August 2020 report [PDF 471 KB] prepared by the KPMG member firm in South Africa 

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