‘Corruption tax’ proposed for South Africa – how it would work

Associate Professor and research director at the University of Cape Town’s Graduate School of Business, Sean Gossel, has proposed the introduction of a ‘corruption tax’ in South Africa, which would punish corporates complicit in state capture and other forms of corruption.

As a result of a lack of political will and weakened prosecutorial ability, it is sadly unlikely that the country will be able to claw back the R1 trillion lost to corruption and state capture, Gossel said.

At the same time, private sector enablers and beneficiaries such as McKinsey, Bain, KPMG and others believe that simply repaying the fees they earned while looting and destroying the country’s institutions absolves them from further culpability.

However, Gossel said authorities could penalise private sector companies for their complicity in corrupt activities by introducing a corruption tax.

Companies that have been found guilty of engaging in corrupt activities should pay an additional percentage of company tax above the country’s corporate tax rate, he said.

“Over the long term, the taxation repaid to the state should outweigh the benefits of corrupt activities and would therefore make such activities less economically enticing,” he said.

“It could be argued that this higher tax rate would penalise shareholders of listed companies rather than the guilty managers. However, this is not entirely true because shareholders can hold managers to account for their corrupt decisions at AGMs and the company would be subject to the market discipline associated with share price and brand erosion.”

International sanctions 

While South Africa has historically been slow to act on corruption and state capture cases, there is a growing international push to hold multinational companies responsible for their role in corruption.

British lawmaker Peter Hain petitioned US president Joe Biden this week to suspend Bain & Co’s operating license after a South African judicial commission implicated the global consultancy in misconduct related to work it did for SARS.

“This is a big stain on Bain’s international reputation,” Hain said in a phone interview with Bloomberg on Thursday. The company’s officials in South Africa who were working for a corrupt government were answering to executives in London and New York, “so there is an international complicity here.”

The UK government has also said it will ask Bain about the findings by the South African panel headed by acting chief justice Raymond Zondo, which has spent the past four years probing graft during former President Jacob Zuma’s scandal-marred rule.

Bain has denied willfully facilitating or being party to corruption in South Africa.

Prosecution still needed 

While the UK’s move has been welcomed, there is enough compelling evidence in the Zondo report for President Ramaphosa to act against those heavily implicated in state capture, says civil society group Outa.

“Much of the wrong-doing evident during Jacob Zuma’s rule was conducted with the full knowledge and very often the participation of his ministers, deputies and premiers who served at the pleasure of the president.

“Implicated state officials should face rapid internal disciplinary procedures with a view to firing as many of these delinquents as possible, and placing their names on a list of those barred from all future government jobs.”

The group has also called on law enforcement authorities to consider seizing the passports of the most implicated people. “They must not be allowed to escape being held to account, as the Guptas did,” it said.

With further reporting by Bloomberg.

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‘Corruption tax’ proposed for South Africa – how it would work