Practical accounting insight: Businesses carrying inventory should review how they identify, document and account for damaged, deteriorated or obsolete stock. A recent submission by the South African Institute of Chartered Accountants (SAICA) to National Treasury has highlighted uncertainty around the tax treatment of stock obsolescence and called for tax rules to be aligned more closely with sound accounting principles. Read the SAICA submission.

This is a policy proposal, not a change in the law. Businesses should therefore not assume that a new deduction or simplified treatment is currently available. However, the submission is a useful reminder that inventory write-downs require a defensible process, supporting evidence and careful separation between accounting treatment and tax treatment.

Why stock obsolescence matters

Inventory is normally recorded at cost, but its value can fall because of damage, deterioration, changing customer demand, discontinued product lines or a decline in market value. If stock remains on the books at an amount that is no longer recoverable, management accounts and financial statements may overstate assets and profit.

SAICA’s submission refers to existing uncertainty about the application of section 22 of the Income Tax Act. It notes that tax rules do not automatically follow accounting principles when businesses provide for obsolete or slow-moving stock. The submission also refers to SARS guidance and court decisions concerning the evidence required to support a reduction in the tax value of closing stock. SAICA’s submissions page records the document as submitted on 7 October 2026.

What businesses should not assume

The proposal does not mean that every accounting provision for obsolete stock is currently deductible for tax. SAICA is asking National Treasury to clarify and simplify the position. Until legislation, official guidance or a binding interpretation changes, the accounting entry and the tax computation may need to be treated differently.

This distinction is especially important at year-end. A provision that is appropriate for financial reporting may still require an adjustment when taxable income is calculated. The timing of the tax deduction may also differ from the period in which the accounting loss is recognised.

Checks for finance teams

  • Maintain an itemised inventory ageing report showing quantities, unit costs and last sale or movement dates.
  • Separate damaged, expired, discontinued and slow-moving stock rather than applying one unsupported percentage to the entire inventory balance.
  • Keep evidence such as inspection records, customer orders, markdown decisions, supplier correspondence, disposal records and post-year-end sales.
  • Document the method used to estimate any accounting write-down and ensure it is applied consistently.
  • Ask whether each proposed write-down is supported for accounting purposes, tax purposes, or both.
  • Reconcile the inventory subledger to the general ledger before preparing management accounts or annual financial statements.

A practical cost-saving opportunity

Better inventory controls can help businesses reduce avoidable costs before tax is even considered. Identifying slow-moving goods earlier can support targeted promotions, purchasing changes and more accurate cash-flow forecasts. It can also prevent cash from being tied up in stock that is unlikely to sell.

For now, treat SAICA’s recommendation as a planning signal rather than an enacted tax change. Businesses with material inventory balances should review their year-end evidence and discuss any proposed tax adjustment with their accounting or tax adviser. YFP can also assist businesses with bookkeeping, management accounts and financial controls through its accounting and advisory services.