Your closing stock is added to your taxable income, so an end-of-year stocktake is a tax exercise as much as an operations one. Section 22 of the Income Tax Act allows the value to be written down where stock has been damaged, has deteriorated, has gone out of fashion or has fallen in market value. Counting properly and documenting what is obsolete is worth real money.
Most small businesses treat the year-end stocktake as an administrative chore, count roughly, and move on. That is an expensive habit, because in South Africa the number you land on does not just describe your warehouse. It feeds straight into what you pay SARS.
Get it right and you improve two things at once: the tax you pay on stock you are never going to sell, and the cash currently sitting still on your shelves.
Closing stock is a tax number
This is the part that surprises owners.
Under section 22 of the Income Tax Act, the value of trading stock you still hold at year end is brought into your taxable income. In plain terms, stock you have paid for but not sold does not reduce your tax bill. It sits in the calculation as value you are holding.
The section also allows for that value to be written down. The closing stock figure is cost price less an amount the Commissioner accepts as just and reasonable, representing how far the value has fallen because of damage, deterioration, change of fashion, a decrease in market value, or another reason the Commissioner accepts. Where net realisable value calculated under normal accounting standards is lower than cost, the courts have accepted that as a proper basis for the value.
The practical consequence is straightforward. Stock that is genuinely damaged, expired, superseded or unsellable at anything near cost should not be carried at full cost into your tax calculation. But you cannot simply decide that at your desk. You need the count, the condition, and evidence for the value you have landed on, and you want your accountant handling the claim rather than a guess in a spreadsheet. Our overview of South African business tax covers the wider picture.
Count it properly, once
A count that nobody trusts is worse than no count, because it makes every downstream decision wrong.
Pick a date close to your financial year end and freeze movement while you count, or record every movement during the count so it can be reconciled afterwards. Have two people count high-value lines independently. Count what is physically there rather than working from what the system says should be there, since the whole point is finding the difference.
Do not forget stock that is not in the building: goods with a customer on approval, items out for repair, consignment stock and anything sitting with a courier. It is still yours and it still counts.
Record condition as you go, not afterwards. A note that says “water damaged, twelve units” written at the shelf is evidence. The same claim reconstructed in February is a memory.
Separate slow stock from dead stock
These need different decisions, and conflating them is why businesses keep discounting things that would have sold anyway.
Slow-moving stock still sells, just not quickly. It ties up cash and space and usually needs a pricing or merchandising fix. Dead stock is not going to sell at anything close to cost: it is obsolete, superseded, expired, damaged or the tail end of a range nobody asks for any more.
Go through your lines and mark each one honestly. The test is simple. If you would not reorder it today at the price you paid, it is not worth carrying at that price.
Clear what is dead before year end
Once you have identified dead stock, moving it before year end converts a dead asset into cash and cleans up the number you carry into the new year.
Bundle slow items with fast sellers rather than discounting them alone. Run a clearance with a real end date, because an open-ended sale trains customers to wait. Offer it to staff. Sell it to a trade buyer or clearance channel at whatever it fetches. Where something genuinely has no value, dispose of it and document the disposal properly, because a written-off item you cannot evidence is a problem rather than a deduction.
Whatever route you take, keep the paperwork. The evidence is the difference between a defensible position and an argument.
Use the count to fix next year
The count gives you a full year of data. Use it before you file it away.
Work out sell-through per line rather than looking only at total revenue, because that tells you what to buy again and what to stop. Identify your genuinely fast movers and set reorder points so you stop running out of the things that actually sell. Look at what went obsolete and ask why you bought that much of it, since the answer is usually an over-optimistic order rather than bad luck.
Then check your supplier terms. If you are paying for stock well before you sell it, that gap is your working capital problem, and negotiating longer terms or smaller more frequent orders often does more for cash flow than any discount you will negotiate on price.
Fix the causes, not just the symptoms
Businesses that do a painful stocktake every year are usually solving the same problem repeatedly.
The common causes are ordering by feel rather than by data, no reorder points, buying in bulk for a discount that costs more in tied-up cash than it saves, and no process for flagging a line that has stopped moving. Each of those is fixable once, rather than annually.
If you are counting on paper and reconciling in a spreadsheet, that is usually the moment stock software starts paying for itself.
Frequently asked questions
Does unsold stock reduce my tax bill?
No. Under section 22 of the Income Tax Act the value of trading stock held at year end is included in taxable income, so stock you have paid for but not sold does not reduce what you owe.
Can I write down obsolete stock for tax?
The Act allows closing stock to be valued at cost less an amount the Commissioner accepts as just and reasonable where value has fallen through damage, deterioration, change of fashion or a decrease in market value. You need evidence, and your accountant should handle the claim.
When should I do the stocktake?
Close to your financial year end, with stock movement either frozen or recorded so it can be reconciled. Counting at a quiet point in the trading week makes it far easier.
What counts as stock I have to include?
Everything you own, including goods out on approval with a customer, items away for repair, consignment stock and anything in transit with a courier.
What is the fastest way to free up cash from stock?
Identify dead lines, bundle or clear them with a firm end date, and set reorder points on your fast movers so cash stops going into things that do not sell.
Further reading
Originally published in December 2023. Updated September 2026 with the current treatment of trading stock at year end. Tax rules change, so confirm the position with your accountant or on the SARS website before you file.
