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Input tax on corporate social investment programs

Input tax on corporate social investment programs

January 14, 2022

There appears to be confusion in the VAT fraternity as to whether VAT on costs incurred in respect of corporate social investment (CSI) programs qualifies as recoverable input tax. In this article we explore the reasons for the confusion and provide some guidance with regards to addressing these challenges.


CSI programs have become intrenched in the manner in which corporate South Africa operates. In practice the programs take various forms and shapes.

Where cash contributions are made towards CSI programs, there are normally no VAT implications for the donor as no goods or services are supplied to the donor.

Where goods or services are acquired in the process of executing a CSI program, there appears to be more than one school of thought with regards to the recoverability of the VAT as input tax.

The reason for the uncertainty

Input tax may be claimed to the extent that costs have been incurred for the purpose of consumption, use or supply in the course of making taxable supplies.

Where goods or services are acquired and provided to a third person for no charge, the question arises whether it could be argued that the goods or services have been acquired in the course of making taxable supplies for a consideration.

As a general rule the VAT Act regards goods or services supplied for no consideration to be supplied for a consideration of nil.

But this is only the beginning of the debate …

The tax court held that where goods are supplied to a third person out of a motive of pure generosity or disinterested benevolence, such goods or services cannot be held to have been supplied in the course of making taxable supplies for a consideration. Input tax in respect of such goods or services may therefore not be claimed by the donor.

So what does this mean for expenses incurred in respect of CSI programs?

CSI programs

The crisp issue for consideration is whether expenses incurred in terms of CSI programs can be regarded as supplies made for nil consideration or whether the supplies were made out of pure disinterest benevolence and generosity.

SARS indicated in Interpretation Note 70 that as a general rule costs deductible for income tax purposes will also qualify for VAT input relief.

In a binding private ruling SARS ruled that costs incurred in respect of a CSI program with the intention of obtaining BEE points, are deductible for income tax purposes. The ruling did not deal with the VAT implications of the arrangement.

A reality check

In the contemporary business environment corporates are viewed as corporate citizens responsible for the socio-economic environment they share with individuals.

The contribution that corporates make towards the socio economic environment are reported in the annual financial statements of the corporates.

Most CSI programs are structured in such a manner that the maximum benefit is obtained with regards to the corporate’s BBBEE scorecards.

The reality is that corporates cannot be said to participate in CSI programs out of a motive of pure disinterested benevolence. CSI programs have become an integral part of operating businesses in South Africa and globally.

It can therefore be convincingly argued that the costs of CSI programs are intricately linked to the day-to-day operations of the business and as such must be viewed as being incurred in the course of making taxable supplies. VAT on such costs should therefore be recoverable input tax.

But …

A word of caution

It would be ill advised to classify all VAT incurred on CSI programs as recoverable input tax. Where the costs are incurred in terms of a formal CSI program, the VAT would generally speaking be recoverable.

Care should however be taken where ad hoc projects are entered into to ensure that it is closely enough linked to the business operations of the enterprise.

The old Maxime “The facts and circumstances of each case must be considered” applies to CSI expenditure as much as it does to any other arrangement.


We live in an ever-changing evolving world where what was the rule today no longer applies tomorrow.

CSI programs is one of the areas where the rules have changed from voluntary participation to, for all intents and purposes, compulsory business expenditure to operate in the corporate environment.

There is accordingly no apparent reason why CSI program expenditure should be treated any different from other enterprise expenditure on which input tax is claimed.

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