Drip faces challenges over not complying with domestic tax laws.
Drip fell into financial difficulties, allegedly bringing the company to the brink of bankruptcy, and was rescued by the Gauteng Economic Development Department.
Gauteng's Executive Council (MEC) member for finance and economic development, Lebogang Maile, has written to South African Reserve Bank (SARB) governor, Lesetja Kganyago, requesting his intervention to restructure Drip Group.
“We cannot sit back and watch as The Drip Group, a company founded by disadvantaged young black men in the Ivory Park neighborhood, is liquidated,” Maile said.
Drip tax issues
In their letter to the governor, state lawmakers said he demonstrated an unwavering respect for and commitment to the rule of law.
“This extends to respecting the investigative procedures conducted by the South African Reserve Bank in its legal matter with Drip, which is under investigation for alleged breaches of the provisions of the exchange control regulations under section 9 of the Currency and Exchange Act, 1933 (Act No. 9 of 1933),” Maile continued.
Earlier this year, reports emerged that the company was facing R20 million in debt. Responding to the allegations, Drip owner Lekau Sehoana said at the launch of the new sneakers that he could “sleep well at night knowing that we're not actually going bankrupt.”
Drip is currently facing challenges over violating domestic tax laws.
Related article: Drip owner Lekau Sehoana speaks out about eviction rumours
Rehabilitate rather than punish
According to the MEC, if the law is for rehabilitation purposes, it will also take into consideration small and medium business owners.
“This will enable business owners, especially Small, Medium and Large Enterprises (SMMEs), to understand the intricacies of tax and other laws, most of which are ignorant and as a result place their full trust in third parties who can unfortunately exploit this limited understanding.
“We provide employment to hundreds of people, many of whom are from historically disadvantaged groups such as women and young people.
“As government, we must do all we can to provide the necessary support to drip groups and other SMMEs facing difficulties, especially when such difficulties arise from non-compliance with the law, which is different to blatant and deliberate criminal behaviour,” Maile said.
“If we want to respect the rule of law and uphold the all-important principle of separation of powers, it is important that the law is rehabilitative rather than punitive,” Maire continued.
Administrative non-compliance penalties for failure to file a return consist of a flat-rate penalty based on the taxpayer's taxable income, ranging from R250 to R16 000 per month for each month that non-compliance continues.
Related article: Lekau Sehoana closes Kiddies Republic stores, puts them into liquidation
Township Economic Development Act
The MEC said the intervention with the sneaker brand was driven by the Township Economic Development Act (TEDA), which was signed into law in 2022 by then Gauteng Premier David Makhula.
The Act seeks to open up new sourcing and market opportunities for township and village-based businesses and create financing facilities for township and village-based businesses.
“We have a duty to equip these enterprises with the skills they need, and we call on governments, the private sector and civil society to each play their role to help these enterprises succeed.”
“This calls for bodies like the SARB to help equip these companies with the necessary knowledge and skills rather than applying a punitive approach,” Mr Maile said.
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