Tax treatment of stock at year-end

25 March 2019 | Business

If you have stock on hand at year end, it may be deductible for tax depending on its nature and your trade.

Does it consist of items you purchased for sale or items you purchased to be used in the manufacturing process? If yes, the cost of these items are automatically included in your taxable income as part of your cost of sales calculations and no tax adjustment is required.

If the answer is no, then you may be able to claim it as a consumable in the current tax year. Please note that the principles discussed here are not applicable to farming operations.

The cost at which cost of sales should be recorded in terms of section 22 of the Income Tax Act presents the actual cost incurred to acquire the stock and bring it to its current condition and location, less any impairments/stock obsolescence. If stock was acquired at no cost, you are not entitled to a deduction from your taxable income.

If the stock you have on hand at year end constitutes consumables and spare parts (not expected to last/be held for longer than 12 months), the actual cost of such goods are deductible as expense for tax purposes in the year they were acquired in terms of section 17 (1)(a).

Consumables are items, which are not acquired for purposes of resale but with the purpose to repair equipment. Consumables and spares purchased not for resale, but for own use, fall outside the definition of closing stock. As per section 1 of the Income Tax Act, trading stock is define as “trading stock includes anything produced, manufactured, purchased or in any other manner acquired by a taxpayer for purpose of manufacture, sale or exchange by him or on his behalf or the proceeds from the disposal of which forms, or will form, part of his gross income”.

Typical examples of consumables may be things like materials used that do not form part of your final product, i.e. diesel/petrol/lubricants for machinery, stationery stock, certain packing material etc.

For accounting purposes, consumables and spares may only affect your income statement when it is actually used. However, for tax purposes, the closing balance can be deducted from your taxable income in the year it was acquired.

Please remember that this balance should be added back on the tax calculation in the subsequent year to avoid double deduction of the amounts when the amounts clear to the income statement.

Johan Nel is a partner and director at PwC Namibia. This bi-monthly tax column is published on a Monday in Market Watch.

Similar News


Redesigning the business world

12 hours ago | Business

Ester KamatiFounded by Tuhafeni Kashe, a renovation, landscaping, décor and construction company in Windhoek is changing the construction scene one renovation at a time. Kake’s...

Valuing millennials

12 hours ago | Business

Ester KamatiAfter an unconventional recruitment process, including a series of interviews, ten millennials were officially welcomed on board as part of the Pupkewitz team on...

Construction still bleeding

1 day - 17 April 2019 | Business

Construction Industry Federation (CIF) vice-president Panashe Daringo has called on the government to assist the industry, which has been hit particularly hard by the country's...

A partnership for change

2 days ago - 16 April 2019 | Business

On 9 April, Hollard reached out once again and this time made a very generous donation towards the Pupkewitz Foundation.Hollard is an insurance company that...

Longrich illegal, says BoN

5 days ago - 12 April 2019 | Business

The Bank of Namibia has declared the activities of Longrich, a Chinese company that distributes a variety of household cleaning products and personal care products,...

Ohorongo's suitors in town

1 week ago - 11 April 2019 | Business

International Cement Group, the company rumoured to be interested in buying Schwenk Namibia's shareholding in Ohorongo Cement, is said to have sent a delegation to...

Thoughts on the National Budget 2019/20

1 week ago - 10 April 2019 | Business

Limit the deductibility of fees and interest for income tax if no WHT has been paidWe understand that the rationale for this as we are...

Geingob’s fixers under fire

1 week ago - 08 April 2019 | Business

OGONE TLHAGE President Hage Geingob’s announcement of an economic advisory panel, which he hopes will facilitate much-needed jobs and economic growth, is being met with...

Mining claims gobble up farm

1 week ago - 08 April 2019 | Business

Land reform minister Utoni Nujoma has acknowledged that the 15 160 hectare remaining extent of Portion A of Farm Okongava No 72 in the Erongo...

Thieme takes aim at 'illegal' NCCI northern branch

1 week ago - 05 April 2019 | Business

The president of the Namibia Chamber of Commerce and Industry (NCCI), Sven Thieme, says the NCCI northern branch under the chairmanship of Tomas Koneka Indji...

Latest News

Taking charge

12 hours ago | People

Mariselle Stofberg Anthea van Heerden decided to take a leap of faith to start her own company in Windhoek.She is the managing director and...

Chained worker 'joke' backfires

12 hours ago | Labour

Nic Kruger, the owner of Kruger Trading Enterprises (KTE) Custom Body Work in Windhoek, yesterday vehemently defended the honour of his foreman who had chained...

Gangster's paradise

12 hours ago | Government

President Hage Geingob has revealed that 329 red-flagged financial transactions, involving N$9.2 billion, have been referred by the Financial Intelligence Centre (FIC) for further investigation...

ACC probes Katiti

12 hours ago | Crime

Augustinus Katiti's attempts to have the Anti-Corruption Commission investigate his successor at the Namibia Institute of Pathology have backfired. The ACC is now investigating Katiti...

Kabajani blossoms at GIPF

12 hours ago | People

Michelline Nawatises Annette Likeleli Kabajani is a holder of a bachelor’s degree from the University of Namibia (Unam). She has also attained several management and...

Baking a name for herself!

12 hours ago | People

Ester Kamati At the age of 28, Alma Tangi Nakanduungileh is climbing the entrepreneurial ladder and adding sweetness to her clients’ lives. A qualified...

A passion to unlock potential

12 hours ago | People

Ester KamatiJustina Mulokoshi is a chartered accountant (CA) at PwC who has big dreams and is constantly on the lookout for new ways to improve...

Be safe this Easter

12 hours ago | Columns

Easter is always a busy period on our roads, as thousands embark on journeys to various destinations, so they can spend time with their loved...

Willa Brandt, a devoted worker...

12 hours ago | People

Evany van WykWilla Brandt is born and bred in Windhoek, and is the epitome of what we need in the workforce of today. Brandt attended...

Load More