Firms object to ombud levies

Manufacturers are complaining that levies to pay for sectoral ombud oversight “are worse than VAT” and amount to yet another tax on their cash flows.

Every business featuring in the consumer goods and services supply chain must register with the Consumer Goods and Services Ombud (GGSO) and pay a levy towards funding its operations, or face legal action.

Time to pay

Invoices for 2014/15 have been issued and levies for 2016/17 are payable by March 1. The GCSO has appointed Trifecta Capital to collect the levies.

Eligible businesses include, as an extreme example, the farmer who supplies milk for chocolate bars. The only exceptions are companies covered by other ombuds, such as the ombudsman for banking services or the motor industry ombudsman.

Extra tax

Steel and Engineering Industries Federation of Southern Africa (Seifsa) economist Henk Langenhoven said the levies were an extra tax structured in contravention of all accepted tax principles. It is much worse than VAT. Members of Seifsa manufacture, for example, soft drink cans and pots and pans. Companies with turnover below R1 million are excluded.

Levies increase from R1 500 for turnover up to R5 million, R3 000 up to R500 million, R50 000 up to R1 billion, R150 000 up to R3 billion and R250 000 up to R3 billion. Langenhoven has criticised the fee structure as regressive, since small businesses pay proportionally more than bigger ones. It is based on turnover, instead of only the value added at each step in the value chain.

“This is contrary to all tax principles. At every step you have to pay for everything that has been produced,” he said. The CEO of a listed manufacturing company who asked not to be named, questioned the wide reach of the CGSO. He said while the levies did not seem extremely high, they added to the cost of doing business in a tough trading environment.

Legal opinion

The chairperson of another listed company said the company was getting a legal opinion on the lawfulness of provisions in the code authorising the collection of the levies. He further questioned the appointment of Trifecta Capital to do the collections. According to the company’s call centre, Trifecta Capital is part of Trifecta Holdings.

The group suffered serious reputation damage after Trifecta Holdings CEO Christo Scholtz was, together with former ANC leader in the Northern Cape John Block, found guilty in October last year on charges of fraud, corruption and money laundering. Consumer Goods and Services Ombud advocate Neville Melville said there were different fee models for industry ombuds, and no consensus on which was best.

He said it was difficult to determine which businesses were eligible for registration and acknowledges that the scope was very wide. The intention, he said, was that the CGSO would serve as an incubator for more specialised ombuds. Towards the end of 2014, 94 businesses had registered and levies collected amounted to R7.3 million.

A rough estimate indicated that about half the 650 000 registered companies (established from JSE and credit bureau data) qualify to register, he said. The organisation has budgeted to collect R10.4 million in the current financial year. As the number of registered businesses increase, the levies would be reduced, Melville said.

Costs compared

The CGSO’s expenditure budget for 2015/16 was R9.2 million, which he said was much lower than that of other ombuds, averaging between R14 million and R30 million. Melville said Trifecta Capital was appointed after a competitive tender process.