What do you call it when someone pays R7.2bn for a company and then contractually gives up all rights to ever see a cent of profit? In Jannie Mouton’s case, you call it the largest education charity donation in SA history, and a sophisticated piece of tax planning.

The Mouton family’s takeover of Curro through the Jannie Mouton Foundation isn’t just remarkable for its scale. It forces questions about what happens when private capital steps in where the state has failed, and whether our tax system inadvertently rewards the wealthy for doing what the government should be doing anyway.

Here’s the arithmetic that makes this more than feel-good philanthropy. Converting Curro into a public benefit organisation eliminates the R64m annual tax bill it paid last year, as well as R95m in dividend payments. That’s R159m in extra cash flowing directly to education, every year. Add the ability to receive tax-deductible donations under section 18A of the tax law, and you have a funding mechanism that in effect co-opts both shareholders and taxpayers into subsidising private education.

Is this genuinely transformative, or does the tax arithmetic tell a more complex story? Cynical observers might note the timing. Curro’s share price has drifted sideways for five years since Covid disrupted the education sector. The R13 offer represents a hefty premium over the R8 pre-announcement price, but barely exceeds levels it traded at as recently as February. For a family that built fortunes on PSG and early stakes in Capitec, buying distressed assets and restructuring them for profit is a well-trodden path.

But dismissing this as opportunistic tax planning misses the profound public benefits it will deliver. What we’re witnessing is the crowding in of tax revenue to fund private education provision, and it’s entirely legal, arguably beneficial and potentially replicable.

The contrast with international experience is instructive. Britain’s recent assault on private school tax exemptions under Prime Minister Keir Starmer has proved counterproductive. Removing VAT exemptions hasn’t soaked the rich as it was widely billed to. Instead it has flooded state schools with displaced pupils and struck a blow to special needs provision by charities. The poorest areas, where private schools offered genuine social mobility, have seen the biggest exodus.

SA faces no such ideological hostility to private education, partly because everyone understands the reality: state education has failed vast swathes of the population. Draft tax law changes are going to affect schools’ VAT status, forcing them out of being able to claim back VAT for the part of their activities that are commercial in nature, such as renting out venues.

But this appears to be motivated by a desire to tidy up the VAT treatment of schools rather than to raise more revenue. When the government spends R2,500 per pupil annually while Curro charges R30,000-plus, the quality gap reflects resource constraints that philanthropy might actually address.

The tax legislation’s recognition of education as a legitimate public benefit activity makes rejecting Curro’s public benefit organisation application almost impossible. The government essentially faces a choice: collect R64m annually in corporate tax (plus some further dividends tax) or enable R159m in additional education spending. It is hardly a difficult calculation, even for a revenue-hungry Treasury.

What this deal really reveals is the growing role of private capital in addressing state capacity failures. The Moutons are constructing a parallel education funding system that bypasses government inefficiency while capturing state tax benefits.

For existing shareholders the dilemma is delicious. Objecting to an explicitly altruistic offer invites awful optics, though institutional investors have fiduciary duties to maximise returns, not social impact. But even hard-nosed fund managers must weigh the risk of rejecting a deal that converts a struggling listed company into a growing charitable enterprise.

The broader implications extend far beyond education. If successful, the Curro model demonstrates how SA’s tax system can be leveraged to fund social infrastructure through private philanthropy rather than state provision. Other sectors such as healthcare, social housing and infrastructure could follow similar paths.

Of course, nonprofit status it is not all positive. Profits create strong incentive effects for performance. The deal announcement goes some way to insist that efficiency in operations will remain core, along with governance and commitment to quality education. The management team are praised for the approach they have developed, though there will be a pivot from focusing on margin expansion towards growth and innovation in education.

Being nonprofit also limits access to future capital. Curro has been able to tap shareholders to build schools and enable the group to borrow. If Curro is going to achieve rapid further growth it is going to need more injections of cash. This could now be done through donations and potentially some concessionary impact funders, which could be used to leverage more commercial finance. It will be interesting to see how this pans out and whether the scale can match what could be raised from commercially orientated investors.

The deal raises interesting questions about the social contract. Should wealthy individuals receive tax benefits for providing services that should be the state’s responsibility? Or does pragmatism demand we celebrate any mechanism that delivers quality education to more South Africans?

The Moutons have essentially created a machine that converts business profits into educational provision while capturing tax efficiencies for both donor and recipient. Whether you see this as enlightened capitalism or sophisticated tax avoidance may depend on your faith in the private sector to provide public goods. In my view, the intentions here are genuine and should be welcomed widely. Curro educates close to 72,000 pupils and growth in that number would be a public benefit. We desperately need more school leavers with quality skills to build this economy, and the transaction is going to help achieve that.

What’s undeniable is that R7.2bn committed to education in perpetuity, with tax law ensuring it can never be diverted, represents a more durable commitment to transformation than most government programmes. The state may lose some tax revenue, but it gains a force in education funded in perpetuity by people who could easily have kept their money offshore.

Sometimes the most radical act is working within the system rather than against it. The Moutons haven’t just bought a school company; they’ve bought a blueprint for how private capital can address public failures while the tax system pays part of the bill.

• Dr Stuart Theobald is chair of research-led consultancy Krutham. This article first appeared in Business Day.