Legislative reform proposed for the incorporation of corporate social investment expenditure into the South African taxation framework

Abstract

In the last few years, the South African government has requested the private sector's help to address socio-economic and infrastructural problems. One way companies can get involved is through CSI. However, it was found that many South African companies do not engage in CSI at all. It was further determined that companies expect a return on their CSI investment. Generally, JSE-listed companies make use of section 18A of the Income Tax Act (ITA(SA)) deduction for qualifying donations (of a philanthropic nature) and/or the benefits of being compliant with the B-BBEE legislation, - Code, and - scorecard provisions. Only two sections of the ITA(SA) (sections 37C and 37D) considered relate to CSI specifically the conservation of land for the public interest. No other income tax incentives or deductions are available for expenditure relating to the broad definition of CSI (CSIE) incurred. It was determined that a government can use taxation legislation, either tax incentives or a tax, to incentivise or force a company to act in a certain manner. Key findings highlight the inadequacies of the ITA(SA) in incentivising CSIE. Three countries implemented CSR legislation compelling CSR financial contributions. The research question guiding this study is: "How can the South African taxation framework be reformed to incorporate corporate social investment expenditure?" The study's primary objective is to propose legislative changes that integrate CSIE into the taxation framework. Several secondary objectives were identified to address this question, including defining core concepts (CSR, CSI, CP, CSIE). No universally applicable definitions could be found for any of these concepts. Specific key events shaped the development of CSI as a concept in the South African context. It was also found that CSR and CSI are often used interchangeably. The last time any authoritative document defined CSR and CSI in South Africa was with the publication of the King III Report in 2009. An essential step before any legislation can be drafted is to design clear and distinguishable definitions hence the secondary objective indicated. A doctrinal reform-orientated method was followed, scrutinising primary and secondary resources to answer the main and secondary objectives. The research adopts a systematic literature review, using Atlas.ti 23, and an inductive reasoning process to draft definitions for the individual concepts (CSR, CSI and CP). This process culminated in the development of Preston's Integrated Sustainable CSR Model. This model reimagines sustainable CSR as dynamic, regarding each responsibility (economic, ethical, legal, environmental, and societal) as equally important. Each element also demonstrates the CSI component of CSR. Using the secondary objectives to guide the study, potential tax incentives and tax levies (to promote CSI) of South Africa (the ITA(SA)), Mauritius, India and Seychelles were scrutinised. Lessons from the named countries regarding their mandatory CSR legislation, the management of funds, and other tax incentives were considered in the drafting of taxation legislation for CSI incorporating the deduction of CSIE under the ITA(SA). This research contributes to legal scholarship by proposing new universal definitions for each of the concepts, Preston's Integrated Sustainable CSR Model in place of Carroll's CSR Pyramid and drafting legislative reforms that leverage corporate resources in the form of CSIE to address national challenges. By combining theoretical analysis with practical recommendations, the study underscores the necessity of public-private collaboration for sustainable socio-economic and infrastructure development, laying the groundwork for a more inclusive and effective taxation framework.