Transformation: more effective, faster
An alternative to the complex BEE compliance system that addresses the critical need for affordable capital for black-owned businesses.
⚠️Important Disclaimer
Eligibility
This policy exclusively applies to non-JSE listed companies. JSE-listed entities must continue with standard BEE compliance requirements.
Voluntary Nature
The Transformation Levy is entirely voluntary. Companies can choose between traditional BEE compliance or the simplified levy option.
Fund Management
Collected funds will be managed by a Fund of Funds, allocating resources to black-owned SMEs through private sector black-owned fund managers.
Note: This proposal represents a policy recommendation designed to complement existing B-BBEE legislation, not replace it.
Our Approach
- Aligned with Existing B-BBEE Framework:BEE3 complements current B-BBEE policies, offering an alternative compliance route without replacing existing structures.
- Expanding Eligibility for Participation:Broadens access, enabling more businesses to engage in meaningful economic transformation.
- Introducing the Transformation Levy:A 3% gross revenue levy, collected by SARS, provides a straightforward compliance option, leading to Level 3 B-BBEE status (excluding employment equity).
- Establishing the Transformation Fund:Levy proceeds are channelled into a professionally managed fund, investing in black-owned SMEs and fostering sustainable growth.
- Addressing Capital Access Challenges:Directs resources to black entrepreneurs, tackling the persistent issue of affordable capital availability.
- Simplifying Compliance, Encouraging Investment:Reduces administrative burdens, making it easier for businesses to contribute to economic inclusion.
- Limited Applicability:BEE3 is only applicable to unlisted entities. JSE listed entities must still comply with standard compliance requirements.
Key Takeaways
Traditional free-market models have not successfully transferred economic ownership to underprivileged communities; legislative measures like B-BBEE remain essential. However, the complexity of current compliance can deter foreign direct investment and hinder new business formation. BEE3 offers a streamlined, cost-effective alternative, reinforcing the commitment to an inclusive South African economy.
Current BEE Policy
How It Works Today
Companies get a level 1-8 BEE scorecard by complying with multiple criteria:
- Ownership structures
- Management representation
- Skills development programs
- Enterprise and supplier development
Undeniable Success
BEE has been an unquestionable success for economic transformation and has contributed to spurring on the South African economy. The policy must continue.
Current Challenges
For all businesses: The complexity of compliance is a major frustration and distraction. More red tape and regulatory hurdles make it harder to do business in SA.
For black-owned businesses: Despite BEE, access to affordable capital remains a critical challenge, limiting growth potential.
The current compliance regime is very complicated. Companies need a simpler path, even if it's more expensive. Meanwhile, black entrepreneurs struggle to access the capital they need to grow, despite the existing BEE framework.
Enter BEE3
The Alternative Approach
Amend BEE policy to provide for an alternative to the existing complex compliance regime while simultaneously addressing the capital access challenge. BEE3 works alongside existing legislation, enhancing rather than replacing it.
Transformation Levy
Simple Choice
Companies can choose to comply either by the current BEE rules, or simply pay an additional tax: 3% of revenue. This eliminates the complexity frustration that businesses face.
Businesses paying the levy would be exempt from all BEE requirements except employment equity, and would receive a Level 3 rating. Level 1 would be achievable by meeting employment equity targets.
Immediate Results
SARS collects the tax and issues a Level 3 BEE score (upgradable to Level 1 with employment equity compliance). The collected funds directly address the critical need for affordable capital for black-owned businesses.
The employment equity requirement ensures businesses remain committed to transformation while simplifying other compliance aspects.
It's super simple: Too complicated to comply with all BEE requirements? Pay the Transformation Levy, maintain employment equity standards, and directly contribute to solving the capital access problem.
Why Revenue-Based?
The key advantage is that tax is calculated on revenue (sales, turnover). Unlike EBITDA and NPAT, revenue can't be fudged.
| Item | Amount |
|---|---|
| Total revenue | R100 million |
| Profit (20% margin) | R20 million |
| Company tax (27% of Profit) | R5.4 million |
| BEE tax (3% of Revenue) | R3 million |
| Total tax | R8.4 million |
| Effective tax rate | 42% |
The option of paying a Transformation Levy removes most complexity from BEE, particularly for entrepreneurs already struggling to juggle many operational challenges. Simultaneously, it creates a substantial funding pool to address the critical lack of affordable capital for black-owned businesses.
Revenue Projections: The 3% Levy Impact
Total Business Revenue in South Africa (2022)
In 2022, formal businesses in South Africa earned a total of about R12.7 trillion. This includes sectors like mining, manufacturing, trade, and services. It does not include agriculture, finance, or government.
Revenue from JSE-Listed vs. Other Companies
About 300 companies are listed on the Johannesburg Stock Exchange (JSE), and they earn roughly R4 trillion each year. The rest—private companies and subsidiaries of global companies—make up the remaining R8.7 trillion.
| Company Type | Estimated Annual Revenue |
|---|---|
| JSE-Listed Companies | ~R4 trillion |
| All Other Companies | ~R8.7 trillion |
| Total | R12.7 trillion |
Applying the 3% Levy
We assume that all listed companies meet BEE (Broad-Based Black Economic Empowerment) rules. Among the rest, about 15% are not BEE-compliant.
This means the levy would apply to R1.35 trillion in revenue.
A 3% levy on that gives:
0.03 × R1.35 trillion = R40 billion per year
So, over three years, the levy could raise around R120 billion to support transformation efforts.
Estimated ESD Payments by Non-JSE Companies (2022)
This report estimates the annual Enterprise and Supplier Development (ESD) contributions by non-JSE-listed companies in South Africa, assuming full B-BBEE compliance and a total revenue base of approximately R1,35 trillion in 2022 (15% of total unlisted company revenue).
Assumptions
The following assumptions are based on industry benchmarks in South Africa:
- No JSE-listed companies included.
- Only 15% of unlisted companies included.
- Net Profit After Tax (NPAT) is estimated at 10% of revenue (a conservative assumption).
Enterprise and Supplier Development (ESD)
Formula: ESD = 3% of Net Profit After Tax (NPAT)
Estimated NPAT: 10% × R1,35 trillion = R135 billion
ESD: 3% × R135 billion = R4,05 billion
Enterprise and Supplier Development: R4,05 billion
Conclusion
If 15% of non-JSE-listed companies in South Africa were fully compliant with B-BBEE legislation, they would contribute approximately R4,05 billion in ESD.
Comparison: The proposed 3% Transformation Levy would generate R40 billion annually - nearly 10 times more capital for black entrepreneurs than current ESD contributions.
Reference: The full breakdown and how it compares to existing funding derived from Skills Development Levy and Enterprise and Supplier Development contributions are available in Annexure A and B of the .
The Transformation Fund
A Catalyst for Economic Growth
The Transformation Fund serves as a powerful catalyst for economic growth by providing black entrepreneurs with access to the capital they need for true empowerment and business development.
In a serendipitous turn of events, the Dept of Trade, Industry & Competitions' recent announcement of a Transformation Fund creates the perfect opportunity to address the critical lack of affordable capital for Black-owned businesses.
The 3% Transformation Levy can be collected by SARS and transferred directly to the Transformation Fund, creating a sustainable source of capital for black entrepreneurs who can then build businesses that address township challenges and generate employment within those communities.
The Critical Question
What will the Transformation Fund do with the money to ensure it addresses the capital access problem?
There have been failed attempts by the government to establish entities to fund black-owned businesses. These failures have perpetuated the capital access challenge.
We are doomed to have the same outcomes if we don't do things differently and directly address the affordable capital gap that black entrepreneurs face.
Clear Mandate Requirements
- Fund black entrepreneursThe fund's primary purpose is to provide capital specifically to black entrepreneurs and black-owned businesses, in alignment with the core principles of economic transformation. These entrepreneurs can then create businesses that address township challenges and generate employment opportunities within those communities, creating a virtuous cycle of economic growth.
- Provide soft financingInterest-free loans or convertible notes that must be repaid and recycled for the next business. No grants or hand-outs, but terms more affordable than standard private sector funding, directly addressing the affordable capital gap.
- Deploy the moneyFund managers are penalized for sitting on funds. The entire purpose is to provide risk capital for businesses, not let it sit in the bank protected by risk-averse accountants. Black entrepreneurs need capital now, not promises.
Who Manages the Transformation Fund?
The Million Dollar Question
How do we know the Transformation Levy funds are not stolen or incompetently allocated, but actually reach black entrepreneurs who desperately need affordable capital?
Our government doesn't have a great track record of managing money or ensuring capital reaches those who need it most.
The Solution
Don't give it to the government. Create a direct path to affordable capital.
Private Sector Management
Use a credible private sector institution that has experience deploying capital and the corporate governance structures to ensure capital reaches black entrepreneurs who face the affordable capital gap:
- No political meddling
- Transparent fund tracking
- Effective deployment to address the capital access challenge
An obvious institution that comes to mind is the one that successfully deployed the Solidarity Fund during COVID: Tshikululu
Keep the idea of Transformation Fund but replace it with a simple funding source (Transformation Levy), a simple mandate biased towards black businesses, and outsource its management. This addresses both the complexity frustration for businesses and the capital access challenge for black entrepreneurs.
Frequently Asked Questions
How do I get involved?
If you support simplifying BEE compliance and improving capital access for black entrepreneurs, click below and sign the petition.
The more signatures, the more evidence of broad-based support for addressing these critical challenges.