One such change, introduced in the recently enacted Tax Laws Amendments Act, 2020, may adversely affect ongoing business transactions as well as prospective deals even after the Covid-19 crisis abates.
Ordinarily, when a business sells its assets, Value Added Tax (VAT) or Goods and Services Tax (GST) is chargeable on the assets transferred, subject to any exemptions and reduced rates that apply to the specific assets.
For many jurisdictions worldwide, an overriding tax principle allows the transfer of business assets to occur outside of the scope of VAT provided that some conditions are met.
The recent amendment seeks to tax TOGCs at the current standard VAT rate of 14 percent and so buyers will have to dig deeper to finance business acquisitions.
Whilst it could be argued that the buyers of distressed business assets can claim the VAT incurred on the transaction, the reality is that such assets may not quickly produce adequate revenues to facilitate immediate VAT recovery.
