Some years ago, while working with the CEO of one of South Africa’s largest mining houses on the design of an employee share ownership scheme, he offered a piece of advice that has stayed with me.
“Let’s not start by listing all the reasons this won’t work,” he said. “Let’s think about what it could be — and then deal with the hurdles to implementation once we have a working solution.”
That approach feels particularly relevant as debate intensifies around the idea of a 3% profit levy as a means to earn broad-based BEE (B-BBEE) points.
Recent reporting suggests that the department of trade, industry and competition is considering a proposal that would allow companies to earn up to 30 BEE points by contributing 3% of net profit to a Transformation Fund administered by the National Empowerment Fund.
A pragmatic approach
At first glance, the idea appears pragmatic: it preserves the existing scorecard and broader transformation framework while potentially simplifying the administration and complexity of compliance, particularly for companies struggling with ownership requirements.
The shift from a proposed 3% levy on turnover to a 3% profit levy is a textbook example of the Overton window at work. What initially felt extreme has reset expectations, making a profit-based levy appear measured and pragmatic by comparison — particularly given that the broader BEE scorecard remains in place.
Properly structured, a 3% profit levy could be one of the rare policy interventions that aligns a broad range of interests. Multinationals would face a clearer and more investable route into South Africa, with reduced complexity around ownership. Corporates would still be required to invest in skills development, employment equity and procurement from black-owned businesses, keeping the broader transformation framework intact. At the same time, the administrative burden associated with B-BBEE compliance could be simplified, freeing up management focus for growth, investment and job creation.
Employee share ownership
However, the most difficult implication sits squarely with labour. Employee share ownership has been one of the few mechanisms that offers workers a direct stake in corporate value creation. If a profit levy becomes the default route, there is a real risk that these schemes are marginalised or abandoned altogether as companies opt for a simpler compliance path. For organised labour and the larger trade unions, this would not be a technical adjustment but a material shift in how empowerment is experienced in practice — and one policymakers will need to confront explicitly rather than by accident.
There are, of course, legitimate concerns. Any centralised pool of capital raises questions about governance, allocation efficiency, patronage, corruption and whether funds are ultimately productively used. South Africa has no shortage of experience — good and bad — to draw on in that regard. But setting those concerns aside for a moment, the core idea behind a 3% profit levy deserves more serious consideration than it is sometimes given.
If properly designed, it could reduce friction in the system, allow many companies to move meaningfully up the BEE scorecard, and direct substantial capital towards economic activity that supports growth and employment. Crucially, such an approach does not dismantle the broader BEE framework. In that sense, the levy does not replace transformation — it reshapes the route through it.
Ownership remains one of the most complex and deterrent aspects of investing in South Africa. A clear, predictable alternative could materially improve the country’s attractiveness to foreign capital, especially in sectors where local ownership structures are difficult to implement or sustain.
In that context, a 3% profit levy would also cast a long shadow over the existing equity equivalent programme, which is typically structured at about 4% of turnover. A profit-based levy offering similar recognition would be simpler to explain to offshore boards and easier to administer. This is particularly striking given that large multinationals — including companies such as Amazon, Microsoft and Citibank — have already committed substantial capital under equity equivalent arrangements in return for fewer points, typically around 25.
None of this is to suggest that the idea is without complications. Important questions remain. How should low-margin or cyclical businesses be treated? Would companies that opt for a profit levy still face some form of penalty if they don’t comply with ownership? How do we prevent firms from gaming the system, particularly given the prevalence of ownership structures that deliver compliance with limited economic substance?
Additionally, are points awarded under such a framework additional to existing enterprise and supplier development and socioeconomic development points, or do they replace them? Who governs the mechanism, and how is accountability enforced? And, perhaps most importantly, how do businesses gain confidence that funds are deployed efficiently and transparently?
These are not arguments against the idea. They are arguments for thoughtful design. Viewed through the lens of that mining CEO’s advice, the starting point should be to ask whether a simpler, lower-friction model could work better for businesses — one that encourages investment, supports growth and enables job creation. If that foundation is sound, the broader transformation objectives are far more likely to follow.
As always, the devil will be in the detail. But dismissing the concept outright risks missing an opportunity to rethink how transformation capital is mobilised — and how effectively it is put to work.
• Hunt is MD at Transcend Capital.
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