BEE costs South Africa R1.15 trillion in tax revenue per year

Research by the Free Market Foundation (FMF) and the Solidarity Research Institute (SRI) showed that black economic empowerment (BEE) costs South Africa R1.15 trillion in tax revenue annually.

The report, titled “The Costs of BEE Compliance”, showed that over nearly two decades, the cumulative drag on growth amounts to more than R5 trillion in lost economic activity.

This means that BEE and other business-unfriendly policies have left South Africa far behind its global peers, while destroying nearly 4 million jobs in the process.

The report argues that current policies have become economically unsustainable and increasingly divorced from meaningful grassroots empowerment.

“BEE, as currently designed, is enriching a small elite while throttling economic dynamism and deepening unemployment,” said Dr Morné Malan, co-author of the report.

The impact of BEE also negatively affects the state’s tax revenue, as it slows economic growth and reduces company turnover.

Theuns du Buisson, an economics researcher at the Solidarity Research Institute, explained that South African corporations forego 2% to 4% of turnover in direct compliance costs.

Had corporations been able to channel their compliance costs to more productive ventures, the report shows that the GDP would have grown by an extra 3% annually.

This additional growth would have increased South Africa’s GDP to R12.3 trillion had BEE not been implemented and intensified from 2007 onwards.

“These figures do not include other losses, such as those incurred by investors who were deterred by BEE and policy uncertainty surrounding BEE and other redress policies,” he said.

He explained that currently, the overall effective tax rate in South Africa is 25.2% of the total gross domestic product (GDP).

Had the BEE and the accompanying loss of GDP growth not occurred, the tax yield for 2025/6 would have been R3.1 trillion, rather than the projected R1.95 trillion.

This means that South Africa is losing R1.15 trillion in tax revenue annually due to the decision to implement and intensify BEE policies.

This additional revenue would have rendered all the controversial issues in the budget, such as increasing VAT, unnecessary.

Du Buisson argued that a more palatable option would have been to reduce tax rates in South Africa, which would further drive economic growth.

“A larger economy could have fully funded the national budget of about R2.58 trillion, without requiring a budget deficit or any new national debt,” he said.

“In this scenario, at least theoretically, corporate taxes could have been scrapped altogether, without requiring a budget deficit.”

The overall effective tax rate should then be 21% of GDP to produce a balanced budget at current expenditure levels.

“The tax income requirement would then also reduce annually, as debt service costs reduce,” Du Buisson said.

President Cyril Ramaphosa says BEE is great for the economy

Despite mounting evidence about the negative impact of BEE, President Cyril Ramaphosa stated that it is an investment in the economy, which helps it grow.

He made these comments during his keynote address at the 2025 Black Business Council Summit Gala at the Radisson Hotel & Convention Centre in the City of Ekurhuleni.

He stated that the Broad-Based Black Economic Empowerment (BBBEE) Act and the Employment Equity Act are integral components of this legislative framework.

“Since these Acts came into being, there have been notable increases in black business ownership as well as in the number of women-owned businesses,” he said.

“We have seen progress concerning management control, skills development, and enterprise and supplier development.”

He added that, in terms of household income, South Africa has seen progress in narrowing the gap between racial groups.

“The data shows that our broad-based black economic empowerment measures have made an impact, but we need to do more, and we need to do better,” he said.

Ramaphosa said people need to challenge the notion that black economic empowerment is a cost to the economy. “We need to demonstrate that it is an investment in the economy,” he said.

“Now is not the time to abandon the measures we have put in place to drive transformation. Now is the time to move forward with greater purpose and ambition.”

Ramaphosa said South Africa’s public infrastructure spending over the next three years will amount to R1 trillion.

“It is vital that we use this investment to provide opportunities for black businesses in all the sectors that will provide the materials, goods and services,” he said.

He also defended the creation of a R100 billion Transformation Fund to fund black-owned and small business enterprises.

“It’s not only about correcting past wrongs, it is also about establishing a new wave of emerging innovative businesses that can create work and opportunity,” he said.