New BEE tax for South African businesses planned

[Nat Quinn]

New BEE tax for South African businesses planned

 

Minister of Trade, Industry and Competition Parks Tau wants South African businesses to pay 3% of annual net profit after tax for a new R100 billion transformation fund.

In November 2024, Toby Chance, DA spokesperson on trade, industry, and competition, sounded the alarm about the new fund.

Tau unveiled the proposed R100 billion transformation fund during his department’s annual performance plan presentation to the Portfolio Committee.

The fund, administered by the National Empowerment Fund (NEF), will issue funding only in line with BBBEE regulations.

Chance warned that the R100 billion transformation fund risks being a slush fund and is open to abuse.

South Africa’s R500 billion coronavirus funding, for example, was dogged with corruption, fraud, and looting.

“Not only does the DA reject race-based legislation, but BBBEE has proven counterproductive in closing our inequality gap,” Chance said.

He added that the majority of funding is missing the mark in terms of stimulating high-growth enterprises in South Africa.

“Instead, we believe in providing resources based on merit and the business’s viability and growth potential,” he said.

“Our country has an abundance of entrepreneurs drawn from diverse communities who just need the opportunity to succeed.”

He said the department aims to advance the R100 billion through a combination of grants, equity and loans.

This is a significant proportion of total funds from companies’ enterprise and supplier development (ESD) spending, in compliance with the BBBEE code of good practice.

“It remains to be seen how it will accomplish this, given that companies make their own decisions on how to channel ESD spending,” he said.

He rejected doubling down on discredited BBBEE policies by expropriating yet more of businesses’ hard-earned profits.

Raising money for the R100 billion transformation fund

Tau told parliament, in response to Chance’s question, that money for the fund would be raised according to the BBBEE codes of good practice.

Another course of funding will come through the Competition Commission’s public interest participation.

“Entities are obliged under the BBBEE codes of good practice to contribute an equivalent of 3% of annual net profit after tax for the development of black suppliers,” Tau said.

“Entities will be required to contribute to the transformation fund for compliance with the enterprise and supplier development element.”

He explained that the BBBEE codes of good practice make provision for multinational entities to comply with ownership elements.

This includes setting aside funds—25% of the value of their South African operations—for transformation purposes.

“Therefore, funds from the equity equivalent investment programme will form part of the transformation fund,” Tau said.

Chance slated the idea. “The Transformation Fund will use BBBEE regulations to force companies to contribute proportions of their finances to the fund,” he said.

He warned that the new R100 billion transformation fund could become a slush fund for the corrupt.

“This will not achieve a more equal economy but will instead place yet more disincentives on companies wishing to invest in South Africa,” he said.

Another problem is that money raised by the state must be channelled through the National Revenue Fund – i.e., the National Treasury – before being distributed to government entities.

“It remains to be seen whether the National Treasury is on board with Minister Tau’s proposals,” he said.

 

source:New BEE tax for South African businesses planned – Daily Investor

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