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Revised BEE codes

Jaco OdendaalIn October this year, the Department of Trade and Industry (DTI) issued revised Black Economic Empowerment (BEE) Codes for comment. The proposed changes will have some positive and various severely negative effects.

The Codes of Good Practice on Broad-based Black Economic Empowerment (B-BBEE) were issued in 2007, followed by the publishing of proposed amendments to the B-BBEE Act on 9 December 2011.

However, on 5 October 2012, DTI let the proverbial fox loose amongst the chickens with its revised BEE Codes. Many businesses have embraced BEE and have made the required changes to their structures to obtain a reasonable rating. Should the revised BEE Codes be implemented, these businesses may now be faced with a non-compliant status.

The revised BEE Codes do have some positive proposals, including:

  • changing the turnover thresholds of Exempt Micro Enterprises (EMEs) from R5 million to R10 million.

This increase will help ensure that inflationary growth does not force a measured entity into a higher bracket. Another benefit is that the cost of having the BEE-score verified, will decrease considerably for companies currently falling in the bracket between R5 million and R10 million. (They are now treated as Qualifying Small Entities, i.e. QSEs).

  • changing the thresholds for QSEs to entities with turnovers between R10 million and R50 million.

As with EMEs, the cost-benefit for entities with current turnovers in excess of R35 million cannot be ignored. These entities now have to be measured on all seven elements, which have a substantial cost implication. Another benefit is that the verification of a QSE is not as complex as that of a so-called Large Entity. Experience has shown that entities measured on the basis of the generic scorecard, often find it difficult to obtain favourable points. This is mainly due to the complexity of the scorecard.

  • consolidation of the seven elements into five elements. One of the proposals entails the merging of Management Control and Employment Equity into Management Control, and Enterprise Development and Preferential Procurement into Enterprise and Supplier Development. These combinations will remove the current problems relating to double counting and will amount to 40 out of the total of 100 points.

One of the proposals is that the brackets for contribution should be changed. This may result in the following: Until now, an entity that has a score of 66 under the existing Codes has been recognized as a Level 4 Contributor with a B-BBEE level of 100%. Without changing anything in its structure, the proposed changes will result in the entity falling in one foul swoop to a Level 7 Contributor, with its B-BBEE recognition dropping to only 50%!

In addition, should an entity not obtain at least 40% of the points for two or more elements when measured in terms of the generic scorecard, its status will drop by a further two levels. An entity which is measured as a QSE, will drop two levels if it does not meet the 40% sub-minimum in at least one element.

Without having done anything different, these entities may now be faced with a non-compliant status.

Major players in the BEE environment have raised their concerns. Although the process will have to run its course, the revised Codes are not expected to be finalised in its current format. Until the revised Codes are gazetted, making new BEE plans is like shooting at a moving target.

Jaco Odendaal, a director of Exceed Tax and Advisory Services, specialises in B-BBEE-related issues. For further information in this regard, contact Jaco on tel. 021 882 8140 or e-mail