August 20, 2019 / 11:40 AM / a month ago

Cash-strapped South Africa state arms firm ordered to hand over taxes: union

FILE PHOTO: A Denel company logo is seen at the entrance of their business divisions in Pretoria, South Africa, December 4, 2018. REUTERS/Siphiwe Sibeko

JOHANNESBURG (Reuters) - South Africa’s High Court ordered state arms maker Denel to hand over millions in employees’ tax payments to the government, union officials said - a case that has refocused attention on cash-strapped state firms and their drain on the economy.

The Solidarity union sued Denel last month, accusing it of deducting tax and other payments from employees’ salaries then failing to hand the cash over to the South African Revenue Service (SARS) and other bodies.

Solidarity claimed Tuesday’s ruling as a victory in what it described as a broader fight to hold state firms to account. A Denel spokeswoman it had not received details of the ruling but would meet its obligations. She said Denel had approached SARS to see if it could delay payments.

The lawsuit came after Denel, a cornerstone of South Africa’s once-mighty defense industry, said it would not be able to pay employees their full salaries in June and asked the government for a 2.8 billion rand ($182.43 million) cash injection a week later.

Denel’s recapitalization request, one of a clutch of bailouts needed for debt-ridden state-run companies, has piled pressure on President Cyril Ramaphosa who has promised to overhaul Africa’s most industrialized economy after decades of corruption and mismanagement.

Investors and credit rating agencies raised the alarm in July, when the government said it would give power utility Eskom 59 billion rand of additional financial support over the next two years, on top of an already-promised bailout of 230 billion rand spread over the next decade.

Anton van der Bijl, head of Solidarity’s Legal Services, told Reuters he thought the ruling would cost Denel millions of rand.

“It is regrettable that we had to go to court just to draw Denel’s attention to payments that it should have made a while ago.”

The company, which produces military equipment from ammunition to attack helicopters, has said it is trying to turn its operations around by exiting loss-making businesses and pushing to win contracts to ease liquidity constraints.

Reporting by Emma Rumney; Editing by David Goodman and Andrew Heavens

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