JOHN ENDRES | Voluntary BEE tax plan should be scrapped - Business Day

John Endres

Kuben Naidoo has done something rare for a presidential adviser (“Ramaphosa adviser proposes voluntary tax to fund BEE”, July 18). He has written what the defenders of BEE spend their days denying: that the policy has raised the cost of doing business, that it has driven off investment and bred a class of rent-seekers, and that it has knitted a corrupt bond between the state and a section of the black elite.

Coming from a presidential adviser, that candour matters more than the proposal itself, which is for a voluntary tax. A company could pay a 5% surcharge on its corporate income tax — paying R105 for every R100 it owes — and receive in return a BEE compliance certificate and freedom from every other empowerment requirement.

Naidoo expects perhaps a third of firms to take it up, raising about R5bn a year, half of it routed to state development finance institutions and half to banks that promise to lend to black entrepreneurs and account for how they do.

The proposal is better than the scorecard system we have now. The present regime buries firms in verification, ownership deals and reporting, the true cost of which has never been revealed.

The Institute of Race Relations (IRR) estimates the preferential procurement premium alone — the extra amounts the state pays, directly and indirectly, in pursuit of racial transformation — runs to about R150bn a year. The number is in line with IMF and National Treasury estimates, cited by Harvard’s Growth Lab, that these rules add about a fifth to the state’s bill for goods and services.

Against that number an opt-in surcharge that clears away the paperwork looks almost gentle. However, simplifying a bad policy does not make it good. What Naidoo has designed is a cheaper tollgate on the same road. The toll is lower and the queue shorter, but it remains a tollgate.

Consider the R5bn figure more carefully. The cost of BEE was always several things at once, including the paperwork and the premium, and the surcharge touches only the first. For the firms that opt to pay the voluntary BEE tax the reporting burden lifts, which is real relief, but the BEE premium does not move.

If the certificate brings no procurement advantage, few firms will buy it, and the R5bn figure will not survive scrutiny by any finance director. If it does bring procurement weight — as Alan Knott-Craig’s original idea did by granting automatic Level 3 status — then R5bn understates the cost many times over, because the costly part of BEE was never the forms. It was the R150bn the state overpays, and that sum stays precisely where it is.

Where the money goes matters. Half would flow to state development finance institutions, and here Naidoo’s own warning about rent-seeking undermines his remedy.

The cost of politically directed investment is being tallied right now at the Public Investment Corporation (PIC), which manages the pensions of about 1.3-million public servants. Pouring fresh money into institutions such as these enlarges the rent-seeking class Naidoo fears. The bank half of his scheme tries harder to keep patronage out. However, credit steered and audited by race is still politically allocated credit, and we have seen where that leads.

Naidoo’s real argument is political. Capitalism, he argues, cannot survive in a country where the capitalists are white and the poor are black. That premise is weaker than it appears. No one reliably knows who owns South Africa’s capital by race. Many homes owned by black families are held free of any bond, while many white-owned homes are mortgaged to the hilt.

A large share of the Johannesburg market sits inside pension funds and unit trusts, whose beneficiaries cut across every race; and much farmland is held through trusts and companies whose owners are opaque. The single biggest holding of South African shares belongs to the PIC, invested for a public service that is overwhelmingly black.

A policy that aims to transform a distribution no one can measure is designed to be gamed, which is what fronting and box-ticking have always been. What can be measured points the other way. On income, where the data is clean, black South Africans have gained ground quickly: by 2024, of all households in South Africa making more than R75,000 a month, 41% were black and 41% were white.

The World Inequality Lab, no champion of the free market, puts much of that narrowing down to the rapid expansion of top black incomes. BEE’s defenders will put that rise down to employment equity. Some of it may be. But a placement rule can fill a post, not create one. And Naidoo’s tax would not fund employment equity in any case. It would fund ownership.

Naidoo misses the point. You cannot legislate people into wealth. You can only create the conditions in which they earn it. Remove the R150bn premium and you free up 30 times what his fund would raise, left in the hands that produced it.

Spend the effort instead on what actually widens ownership: schools that teach, a state that protects the life, liberty and property of its people, that keeps the water running and the lights on, and that sets rules plain enough to start a business without hiring a consultant to decode them.

The IRR has set out that path in its Blueprint for Growth series of policy papers, and in the case for nonracial redress it calls Economic Empowerment for the Disadvantaged.

One fear remains, the one Naidoo presses hardest: that scrapping BEE would unleash populism and strife. He has it backwards. The populism arrived long ago and grew through the empowerment years, not against them. The ANC has slipped below half the vote and parties campaigning on radical redistribution now speak for about a quarter of the electorate.

A scheme sold as mass redress that in practice enriches a connected few does not hold back that anger; it feeds it, because the poor can see perfectly well who ends up with the shares. BEE promised social peace and bought social strife.

Naidoo is right that BEE has failed. He is wrong that the cure is a neater toll. South Africa does not need a cheaper way to charge business for the colour of its shareholders. Gauteng’s motorists refused for years to pay e-tolls, and in the end the scheme was scrapped. BEE tolls should be too.

Dr Endres is CEO of the IRR.

https://www.businessday.co.za/opinion/2026-08-02-john-endres-voluntary-bee-tax-plan-should-be-scrapped/