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Fresh govt directive puts South African companies at risk of $80k fine, 10% turnover
Segun Adeyemi
The Department of Employment and Labour in South Africa has issued a stark warning to employers: non-compliance with the new Employment Equity Act (EEA), which came into force on 1 January 2025, will carry heavy consequences.
President Cyril Ramaphosa of South Africa. [Getty Images]
New equity law takes effect: South Africa’s updated Employment Equity Act, effective January 2025, enforces racial and gender diversity targets for large employers.
Severe penalties ahead: Non-compliant firms risk losing state contracts and face fines starting at $80,000 or up to 10% of turnover for repeat offenses.
Businesses push back: Employer groups, including Sakeliga and NEASA, say the targets are unconstitutional and could discourage investment and job creation.
Compliance checks in 2026: The Department of Employment and Labour will begin assessing adherence once companies file their first equity plans early next year.
According to the department, companies risk losing access to government contracts, being referred to the labour courts, and facing fines starting from R1.5 million (US$80,000), rising to 10% of turnover for repeat offenders.
South Africa tightens state business rules
A general view of the Alexandra township with the Sandton cityscape in the background taken from Linbro Park in Johannesburg on May 4, 2025. [Photo by EMMANUEL CROSET/AFP via Getty Images]
In a parliamentary response, Nomakhosazana Meth, the Minister of Employment and Labour, made it clear that the enforcement mechanisms are wide-ranging.
First, non-compliant employers will not receive anEE Compliance Certificate, a prerequisite for bidding on or executing state contracts.
“Any company without an EE Compliance Certificate will be prohibited from doing business with any organ of state,” she said, signalling zero tolerance for defiance.
Second, employers who fail to meet their annual equity targets (which feed into broader five-year sector targets set in April 2025) without valid justification will face the labour court.
If found guilty, initial penalties start at R1.5 million or 2% of annual turnover, whichever is greater, and could escalate to 10% of turnover for repeat non-compliance.
Nomakhosazana Meth, the Minister of Employment and Labour. [X, formerly Twitter/@Thobeka_Rare]
Meth emphasised that the law is “key transformative legislation” meant to protect the “fundamental human right to equality and equity in employment.”
It mandates that designated employers, defined as businesses with more than 50 employees, take active steps to eliminate unfair discrimination and redress historic disadvantages faced by Black people, women, and persons with disabilities, in all occupational levels.
The five-year goals, published officially in April 2025, require employers to submit equity plans between 1 September 2025 and 15 January 2026.
Minister Meth noted that it is still too early to assess compliance: “It is premature at this time to assess how many designated employers are complying with the sector EE targets. The assessment of compliance … will only come into effect in the 2026 EE reporting period.”
The legislation does allow for “justifiable” deviations where businesses can argue limited recruitment or promotion opportunities, lack of suitably qualified persons from designated groups, impact of business transfers, mergers, or broader economic conditions.
Business groups warn of job losses, legal battles loom
View of constitutional court during arguments in the rand manipulation case involving local and international banks at Constitutional Court on August 20, 2025 in Johannesburg, South Africa. [Photo by Luba Lesolle/Gallo Images via Getty Images]
Critics, including business lobbies such as Sakeliga, National Employer Association of South Africa (NEASA), and Business Unity South Africa, argue the targets amount to rigid quotas, calling them constitutionally questionable and potentially harmful to investment, growth, and job creation.
But the minister pushed back: while the act is not itself a job creation policy, it should support job creation rather than hinder it.
She also pointed out that small businesses (with fewer than 50 employees) are exempt from the stricter compliance obligations, though they remain bound by general anti-discrimination provisions.
The coming months will show whether large employers across South Africa and perhaps beyond in regional value chains align with the new equity path, with financial, legal, and reputational consequences ready to follow for those that do not.
Warning to auto assessed taxpayers in South Africa
Tax experts have warned taxpayers that it is still their responsibility to correct and regularise their taxes, even if they have accepted or ignored an incomplete or incorrect auto assessment.
Auto assessments started rolling out from 7 July 2025, and the South African Revenue Service (SARS) ended its batch processes just before the manual filing season opened on 21 July.
According to SARS, over 5.8 million taxpayers were auto-assessed during the period, with the taxman paying out R10.6 billion in tax returns.
Notably, SARS said that 99.6% of the assessments were unchanged, pointing to the system’s success.
However, professional services platform Procompare flagged a significant number of frustrated taxpayers who ran into trouble with the process.
The group said that the most common issue with the auto assessments flagged by taxpayers is related to incomplete information about medical aid deductions.
Other issues found were missing non-salary income information, duplications and other ommissions like travel allowaces or overlooked retirment-annuity contributions.
With SARS pointing to 99.6% of auto assessments being unchanged and “accepted”, tax experts on the Procompare platform warned that this does not necessarily mean the assessments were correct.
SARS assumes the auto assessment is correct if a taxpayer does not take any action to amend the information it contains.
However, taxpayers often get confused by the SARS filing dates, thinking they can only manually adjust their taxes when the manual filing window opens, or they ignore the process entirely.
Taxpayers need to take immediate action to reject the auto-assessment and begin a manual filing process to stop the automatic payment, which typically happens within three days.
Taxpayers then have until the filing deadline (20 October 2025 for non-provisional taxpayers) to complete their corrected return.
But even if the auto-assessment is accepted or ignored, and it contains errors, taxpayers are still expected to correct this.
It isn’t over
SARS commissioner Edward Kieswetter
With the window for auto assessments now closed, taxpayers who went through the process shouldn’t think they are in the clear.
“Many taxpayers mistakenly think that if SARS auto-assessed them and even paid out a refund, nothing more is required,” the tax experts said.
“Be careful: if you have additional income or deductions, you still need to file a return to correct the record.”
An auto-refund isn’t final if the actual tax calculation should be different – don’t assume “SARS paid me, so it must be right,” they said.
“Failing to correct an inaccurate tax assessment can have serious consequences. SARS expects you to report all your income and claim only legitimate deductions, even if their auto-calculation missed something.”
Ignoring an error might feel convenient now, but it can come back to bite you in the form of penalties, interest, or even criminal charges.
If a taxpayer has unknowingly accepted (or ignored) an incorrect auto-assessment, the assessment becomes final, but there are still options to fix it.
This requires extra steps, however.
First, taxpayers will have to issue a request for an extension or correction to SARS. The tax services have mechanisms to process assessments after they have been finalised.
You can submit a Request for Correction (RFC) on eFiling to amend a return if it was filed with errors. SARS allows taxpayers to apply for an extension up to 3 years from the auto-assessment date, provided there are valid reasons.
If the tax correction isn’t allowed or accepted, or the tax deadline has passed, taxpayers can file a Notice of Objection (or dispute).
This involves filing a Notice of Objection (NOO) to the assessment. This is a more involved legal process and is usually a last resort.
“The tax laws recognise that it’s ultimately the taxpayer’s responsibility to get their return right, even in the era of auto-assessments,” the experts said.
“Correcting an already-final assessment can be tricky, so try to catch errors early. If you’re past the date, consider getting professional tax help.
Tax season 2025 dates
Income Taxpayer
Open
Close
Auto-Assessments
7 July 2025
20 July 2025
Individual
21 July 2025
20 October 2025
Provisional
21 July 2025
19 January 2026
Trusts
21 July 2025
19 January 2026
Fix the problem at the source
Because the auto assessment process pulls in data from third parties, SARS and tax experts on the Procompare platform, urge taxpayers to sort out any issues at the source.
“If you find that a third party provided wrong or incomplete info, ask them to correct it and submit the updated data to SARS,” they said.
“You cannot simply edit pre-populated figures yourself – SARS locks those fields to ensure the data matches official records. Once the third-party data is corrected, refresh your return on eFiling to see the updated figures.”
SARS’ official stance is the same. The data it receives from third parties is the same data that taxpayers receive, so any errors are captured and need to be changed at the source.
The experts also added that it is crucial that filers keep evidence for any new information added to the return.
SARS notifies taxpayers to keep records for at least five years, just in case it asks for verification or initiates an audit.
“For instance, if you add a medical expense deduction or declare extra income, have the receipts, logs or statements ready,” the experts said.
Once a taxpayer has submitted a corrected tax return, SARS will process it and issue a new assessment (ITA34). This will show an updated tax outcome.
“Double-check this notice to ensure it now reflects what you expect. If something still looks off, you may need to follow up or even file a dispute, but in most cases, a properly filed return will resolve the discrepancies,” they said.
SARS is ramping up audits using AI and third-party data, often without prior warning, leading to steep penalties of up to 200% for unexplained income or non-compliance.
Jashwin Baijoo, Associate Director and Head of Strategic Engagement & Compliance at Tax Consulting SA, explained that SARS, with a R535.9 billion debt book, is looking for any means to expedite seamless collections.
To do this, SARS can leverage Artificial Intelligence and data-driven insights from third-party information, including processing taxpayer bank statements without prior warning or consent.
This empowers the revenue collector to fully capitalise on their legislative power to audit taxpayers based on “risk(s) detected”, typically going back 5 years.
“Imagine having historically filed all your tax returns on time, making good on your dues to SARS, only to wake up to a Notification of Audit and Request for Relevant Material,” Baijoo said.
“This has become the new normal for many South African taxpayers, be it individuals or companies.”
Baijoo explained that since the start of 2025, Tax Consulting SA has seen a significant spike in SARS Audits. In most cases, people miss SARS’s request for documents, so the audit is finalised without their input.
This usually leads to SARS making an adverse finding against the taxpayer. The taxman will then increase the tax paid on their gross income.
The adjustments often stem from an analysis of taxpayer bank accounts, and where a credit transaction is unexplainable, it is deemed to form part of income.
Additional taxes are then levied on this upward adjustment amount, for which the taxpayer is wholly liable.
Current technological advancements, including machine learning, now grant SARS access to taxpayer information from crypto trading/investing platforms. This allows the revenue authority to determine crypto taxes owed.
“It is noteworthy that to give effect to these adjustments, SARS must issue Additional Assessments, which in extreme cases of non-compliance, may impose ‘Understatement Penalties’ of up to 200% of the tax due,” Baijoo warned.
Delays will cost taxpayers
Baijoo explained that SARS has made significant progress in modernising its systems to detect fraud and enhance compliance.
It is also building its tax collection capacity and has a track record of in-depth Audits when any inkling of non-compliance is detected.
These data-driven insights inform SARS of all transactional records pertaining to specific taxpayers. Using AI, the human resourcing element is significantly reduced in “risk detection” and subsequent compliance-centric actions.
This collaborative approach enables SARS to gain access to a comprehensive dataset, facilitating more robust evaluations of taxpayers’ financial activities.
This results in risk detection and the subsequent issue of a “Notification of Audit and Request for Relevant Material.”
Taxpayers have a limited time to respond before Audit Findings and Finalisation are issued. Baijoo stressed that where taxpayers face a historic audit from SARS, it is imperative to ensure a timely response with all correct supporting documentation.
“We have seen in the market a number of ill-advised taxpayers seeking the correct counsel only after the fact and paying the price for it, such as when those Additional Assessments are issued post-Audit Finalisation.”
“The nail in the coffin is always the Understatement Penalties, capping at a bank-breaking 200% of the capital taxes due!”
He advised that, as a rule of thumb, all correspondence received from SARS should be holistically addressed by a strong multi-faceted tax, legal, and financial team.
“In instances of non-compliance with tax laws, legal professional privilege is a must, especially where SARS have suspicion of, or has already detected, ‘risk(s)’.”
“This will not only serve in safeguarding you against potential jail time but also allow for the correct legal stopper to be put in place, preventing SARS from implementing aggressive collection measures.”
Economist Dawie Roodt suggested that South African companies should pay a 15% corporate income tax (CIT), as other countries are reducing their CIT rates to attract investments from businesses.
As other countries reduce their CIT rates, South Africa’s 27% looks increasingly unattractive, warding off potential investment that would boost economic growth.
Moreover, the tax bill imposed on companies is often passed on to consumers in the form of higher prices, meaning that individuals ultimately foot the bill.
Roodt, who is the chief economist at the Efficient Group, recently told Daily Investor why South Africa should reduce its CIT rate.
He explained that South Africa is over the Laffer Curve with regard to CIT, with any increase likely to result in less tax revenue as companies close down or look to minimise their tax liabilities.
Inversely, a reduction in CIT is likely to result in increased revenue from this source as companies grow, invest, and new businesses are formed.
South Africa has one of the most concentrated CIT bases in the world, with only 1,051 companies covering 72.3% of the state’s revenue from this source.
This translates into 0.1% of all companies paying 72.3% of CIT in the country. These are companies classified by SARS as generating taxable income greater than R100 million annually.
SARS outlines this data in its annual Tax Statistics, with the most recent edition being published in December 2024.
It showed that South Africa has a highly concentrated CIT tax base, despite over one million businesses being registered for tax in the 2023/24 financial year.
Of these companies, 287,802 made a loss and 637,435 had no taxable income. There were 198,695 companies which made a profit of up to R1 million and paid R7.4 billion in company income tax.
Another 41,709 had a taxable income of R1 million to R100 million and paid R82.5 billion in tax. They accounted for 25.5% of all company income tax.
72.3% of company income tax was paid by companies with taxable incomes of more than R100 million, and 66.5% by large companies with taxable incomes of more than R200 million.
South Africa’s over the curve
Efficient Group chief economist Dawie Roodt
Roodt said this shows South Africa is over the Laffer Curve with regard to CIT, with a small number of companies being squeezed for most of the revenue.
The Laffer Curve depicts the relationship between tax rates and revenue, according to a theory by economist Arthur Laffer.
It suggests that taxes could be too low or too high to produce maximum revenue and that both a 0% income tax rate and a 100% income tax rate generate no revenue.
As such, the ideal tax rate, at which the maximum revenue is generated, is somewhere in between. Roodt thinks South Africa has strayed over the edge of the curve, with a CIT rate higher than the ideal.
More worryingly for Roodt, companies tend to pass this tax on to consumers through higher prices, putting strained South Africans under more financial pressure.
“Corporates don’t pay taxes. They shift the CIT burden down to individuals. So, we have to reduce corporate taxes quite dramatically as well, and I would try to aim for 15%,” Roodt said.
“Another reason why I say this is because it seems that this is the lever where corporate taxes are heading internationally.”
South Africa appears to be heading this way, at a very slow pace. The CIT rate was reduced from 28% to 27% on 31 March 2023, providing some relief to companies.
In contrast, the average rate for members of the Organisation for Economic Co-operation and Development is 23.2%.
This means that South Africa is fundamentally uncompetitive globally, and its elevated CIT rate prevents companies from setting up operations in the country.
Foreign companies and investors would rather allocate their capital towards countries where they can pay a lower rate, keep more of the profits, and have a business that generates more cash to reinvest and grow.
