New BEE tax on the cards for South Africa

South Africa is considering a voluntary BEE tax of 3% of gross revenue that could allow businesses to avoid BEE regulations while funding transformation.

In 2025, entrepreneur Alan Knott-Craig proposed a new voluntary tax that businesses could use to avoid BEE regulation.

This proposal has been further endorsed by Kuben Naidoo, former Reserve Bank Deputy Governor and senior National Treasury official.

“As political ideas go, the new ‘optional tax’ sounds deceptively simple and conceptually compelling in the current political paradigm,” said South African Institute of Taxation’s CEO, Keith Engel.

One core benefit of the proposal is that it funds the president’s transformation initiative with billions without imposing a new forced tax on everyone.

Some estimates suggest that it could raise R40 billion per year. Another benefit, Engel said, is that it provides businesses with a BEE regulatory “escape hatch”.

This option may be especially useful for high-margin foreign businesses, such as Starlink, that refuse to invest in South Africa while BEE regulations remain rigidly in force.

“This refusal comes at no theoretical cost to society because the lost BEE private support is simply shifted to the transformation fund,” Engel explained.

However, he said one of the main problems with the proposal is that the tax would be based on a company’s total revenue.

“The gross revenue focus effectively eliminates low-margin businesses, such as grocery chains, from the tax option. Proponents point to the simplicity of gross revenue,” he said.

“However, reliance on net profit within the current income tax act enforced by SARS would be far easier administratively with the BEE voluntary tax simply acting as an income tax surcharge.”

As Engel explained, a net profit tax would naturally need to rely on a higher yield than 3% to generate comparable revenue, since it would be calculated on a business’s profits rather than its total turnover.

Poor spending could turn the voluntary BEE tax into a mandatory levy

Setting aside technical issues in BEE regulatory enforcement and the application of BEE voluntary taxes alongside current penalties, he said the real issue is how these funds will be used.

“Funding pools don’t have much success in South Africa. Funds like the RAF levy and the plastic bag levy have simply been wasted,” Engel said.

Worse yet, South Africa has a history of diverting all revenue streams to cadre deployment rather than to the worthy objective of meritorious BEE candidates.

“Another subtle issue to consider is the types of empowerment at issue in South Africa. One type of BEE relates to skills development, the second type relates to capital,” he said.

In terms of skills development, Engel stressed progress can only be made through education and work opportunities.

“More than enough funding has been committed on that score, and, in my experience, a fair amount of progress is continually being made,” he said.

“The gap can and will be closed with time. The problem of solving the uneven allocation of capital is far more difficult.”

Indeed, he noted that the problem of uneven capital distribution is arguably becoming a flashpoint in an increasing number of societies worldwide.

“The traditional routes of wealth tax and expropriation are clearly divisive. The current BEE ownership demands have deterred both private and foreign investment,” he said.

Engel believes that a voluntary escape hatch, as proposed through the new BEE requirement, may side-step this divisiveness.

“At the end of the day, the success of the programme, like every other in South Africa, is not a tax issue but an expenditure one,” he said.

If the fund is used to support genuine projects, a rise in BEE entrepreneurs will change the capital equation, rebalancing the capital imbalance of the past and possibly ending its divisiveness.

On the other hand, if the fund is misused to merely fund friends and fellow cadres, we will be in the same place as before.

Those same officials misusing those funds will then double down on the same formula and turn the BEE voluntary tax into a mandatory one.

Engel warned that this will then return South Africa to the cycle of resentment in which the country is trapped. “Our officials must respect and honour the trust we place in them, should this proposal go forward,” he said.

“Let’s hope they do. If not, let’s hope we have the authority to hold them accountable to remedy the situation.”