The fight against the VAT hike is on
Several NGOs, trade unions and political parties are gearing up to fight the increase in the VAT rate as well as other taxes.
Last week former finance minister Malusi Gigaba announced in his Budget Speech that the VAT rate would increase one percentage point to 15%.
The news was not received well by labour unions and other industry bodies.
Political party the DA has developed its own plan to fight the hike through parliamentary processes. Speaking at a briefing at Parliament on Wednesday, MP Alf Lees explained that the DA will give its inputs for certain bills.
Lees also reiterated previous statements by the DA that the increase in VAT would add to the burden of the poor.
“Tax increases could be avoided through targeted intervention, such as a comprehensive government expenditure review, to ensure that expenditure is brought down to manageable levels and waste is stopped as a matter of urgency,” he said.
The DA has launched a national petition against the VAT increase and other taxes as well.
The Congress of South African Trade Unions (Cosatu) has also criticised government’s approach to increase taxes in order to fix its “budget crisis”.
Cosatu presented its concerns at the public hearings of the budget at Parliament on Wednesday.
“Cosatu rejects and condemns the VAT and fuel hikes in the strongest possible terms and calls for Parliament to defend workers and reverse them,” the federation said in its written submission.
“We would have at least expected government to announce an increase in the number of basic foods that would now be VAT exempt as a gesture to assist workers to cope with the VAT, fuel and income tax hikes.”
Cosatu also believes the 52c/l fuel hike will force businesses and retailers to pass the tax increase on through price hikes.
Cosatu wants government to cancel the VAT hike and reduce fuel levy hikes, among other things.
VAT hike regressive
Several other civil society organisations also submitted to Parliament that the VAT hike will make the tax regime more “regressive” and stands to “exacerbate already unacceptably high levels of poverty and inequality”.
In their presentation, the groups which include Equal Education, Section27 and the Institute for Economic Justice, argued that the cumulative share of indirect taxes paid by the lowest 70% of income earners exceeds their cumulative share of disposable income.
They further stated that the poor aren’t adequately shielded from a VAT increase through existing zero rating measures using data to indicate that less than half of the poor’s food basket is spent on zero-rated goods and other items should be included in this category, such as canned beans, margarine and soap.
The organisations pointed out that an increase of VAT to 15% will also cost the state more in its purchase of goods and services adding to the pressure facing the public sector, which is already experiencing budget cuts.
The groups propose that the ad valorem excise duties on luxury goods (such as golf balls) be increased and the number of items included in this category also be increased.
They also want Treasury to expand the zero-rating category to include more items commonly used by low-income groups, with particular attention to the needs of women and children.
The NGOs believe that tax breaks which benefit higher income households (such as pensions and medical aids) should be reduced.
They disagree with Treasury’s assertion that South Africa’s personal income tax rate (40-45% for higher income earners) and the corporate tax rate (28%) are high enough and encourage an increase to these as well as property taxes.
Pressure to pass budget
The civil society organisations asked MPs to withhold approval of the budget proposal of a VAT hike to 15% and to create a more meaningful public participation processes for the budget, with longer timeframes to allow for greater engagement.
In a joint statement on Tuesday the chairpersons of the Standing Committee on Finance and the Select Committee on Finance said that they sympathise with concerns about the short time frame for the public to prepare submissions about the Budget Speech.
However, the chairs said that in terms of the legislation, both Houses of Parliament have to finalise the fiscal framework within 16 days of the budget being introduced to Parliament, in order to meet the deadline for the new financial year of April 1.
The submissions to Parliament on the VAT increase are ongoing and Treasury will reply on Friday. The committees will then decide on a way forward.