New tax law on interest good for business

Jonathan Hore
Jonathan Hore

Ever since the enactment of Income Tax Amendment Act 38 of 2018 in December 2018, interest deductions for companies were capped through a rather technical formula which refers to 30% of what is known as Tax EBITDA.

Any excess interest determined by such formula would technically be added back to profits and increase the tax costs of companies. Following the said amendment, there was a lot of debate and anxiety in business about the possibility of the law slowing down business growth through discouraging borrowing.

Technically, the law precluded, effective July 1, 2019, the tax deduction of 100% of interest expenses for companies, including productive interest such as for expansion and acquisition of property. The only two groups of taxpayers who were not affected by this law were banks and insurance companies.

Editor's Comment
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