IRR urges provinces to cut BEE premiums from Appropriations Bills

The Institute of Race Relations (IRR) will be making submissions to provincial legislatures this week to argue for eliminating Black Economic Empowerment (BEE) premiums from their Appropriations Bills and thus removing the hidden inflated costs that these premiums impose on the procurement of goods and services.

The second paper this year in the IRR’s award-winning Blueprint for Growth series, Cut VAT & BEE Premiums, sets out how cutting BEE premiums can help enable growth and prosperity. It demonstrates how the removal of BEE premiums could save the government up to R150 billion and support the initiative to cut Value-Added Tax (VAT) from 15% to 11.5%.

Every province is affected by this and, with each one having tabled its budget over the past two weeks, listing various projects and budgetary allocations, it should be noted that as long as BEE premiums are retained, residents will in effect have to share a significant portion of these budgets with tenderpreneurs who profit from the premiums. 

The Cut VAT & BEE Premiums paper reports that senior National Treasury official Willie Mathebula describes the premiums as being “capped” at 25% for contracts below R50 million, and at 11.1% for contracts above R50 million. This means that whenever provinces procure goods and services for education, health or roads – such as school supplies, building a new clinic or road maintenance – a significant share of this spending will fall within the capped BEE premiums threshold. 

Says IRR Strategic Engagements Manager Makone Maja: “Of great concern to the Institute is that these premiums are not openly revealed in the budget, but captured in a manner that is vague and lacks transparency. Our written submissions to the provinces are to urge them to be honest with South Africans about how much of what they pay in taxes is spent on BEE premiums. This figure must be expressed as an individual line item in provincial expenditure rather than being concealed through opaque accounting mechanisms. Residents must be made aware of the extent to which these premiums eat into budgets by inflating pricing without there being an exchange of value.”

The IRR submission urges provincial legislatures to take a step further and remove these premiums by maximising value for money, which would ensure that goods are not procured at a premium, but rather on a basis that is cost-effective. This way, residents get the best goods and services at the best price.

Concludes Maja: “We’ve learned from the Zondo Commission about how BEE premiums have wreaked havoc on infrastructure and service delivery. When goods are procured at a premium, cost-effectiveness, merit and value for money take a back seat, while patronage and corruption thrive. It is time for provinces to implement these lessons and for residents to benefit from them.”

Media contact: Makone Maja, IRR Strategic Engagements Manager Tel: 079 418 6676 Email: makone@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za