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VAT Increase Hits Poor The Hardest. Cosatu Knows It, Will It Embark on Anti-VAT Campaign of 1991?

By Pinky Khoabane

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IT doesn’t matter which way you want to look at yesterday’s budget speech, it simply does nothing for the poor. The increase in value added tax (VAT) from 14% to 15%, the first in democratic South Africa, and the increase in fuel levy, wipe out the gains the poor would have made in the increases in social grants.

Ahead of the budget speech, labour union COSATU, warned against increases in VAT and income tax for the middle class and the poor. “Cosatu expects government not to throw the working and middle classes under the bus with VAT and income tax hikes,” it said in a pre-budget statement.

Well, government has, without having heeded the various discussions on how to best balance the budget shortfall. Suggestions have included increasing the number of basic goods which have been zero rated, increasing corporate income tax and introducing a wealth tax. And the protectors of the wealthy, who include the media, have already come out to minimise the impact of a VAT increase on the poor while ignoring completely the fact that taxation of the rich has been extremely low.

Newspaper headlines will scream that the increase in VAT was made to pay for free education. The fact is free education for the poor is an absolute necessity in this unequal society of ours and the money to pay for it could have been found elsewhere.

Minister Malusi Gigaba, in presenting his budget speech yesterday, said a VAT increase wasn’t meant to hurt the poor. Well it will and he knows it.

A report titled “Lifting the lid on VAT” by Gilad Isaacs published in a Wits University newsletter shows, clearly, how an increase in VAT harms the poor and lower income earners. Furthermore, it shows the low levels of taxation on the rich. “Despite wealth inequality in South Africa being extreme – the top 10% of South Africans hold at least 90-95% of its wealth, while the top 1% holds 50% or more of its wealth – taxation on wealth, or income from wealth held, is low. This includes direct taxation on assets (such as property), income from holding assets (such as capital gains) and inheritance,” the article reads.

The author argues that VAT is a regressive tax. “VAT – charged on most goods and services at a rate of 14% – is levied irrespective of how much somebody earns, making it a regressive tax. In fact, taxes on goods (VAT plus excise duty) hit the poor hardest. The lowest earning 10% spend 13.8% of their disposable income on these taxes compared to 12.6% of the highest earning 10%.

“The Davis Tax Committee admits that raising the VAT rate would increase inequality. It would also make basic goods more expensive and necessitate a proportional increase in social grants and wages in order to maintain the buying power of the poor and workers,” the article says.

Although the wealthy pay higher taxes in South Africa, this does not go far enough in comparison to other developing countries. “… the share of revenue from personal income tax (PIT) fell from 43% in 1999 to 30% in 2007. This is despite strong growth in the number of PIT taxpayers and significant wage growth amongst higher-income earners. It is largely due to falling PIT rates and strong corporate profits, and the consistently high share of VAT. The significant decrease in the tax rate for the highest earners is shown in Table 2 – their tax rate fell from 45% in 1990 to 41% in 2016 (in the two decades prior to democracy it averaged 51%)”.

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“South Africa has no annual “net wealth tax” that would tax the total value of wealth held in a given year.

Considering that large amounts of wealth were accumulated under apartheid, that this wealth is passed between generations, and that black earners have less assets to begin with and must support a higher number of dependents, these low taxes on wealth are indefensible and perpetuate inequality”.

Read the full report here http://www.wits.ac.za/news/latest-news/in-their-own-words/2018/2018-02/lifting-the-lid-on-a-vat-increase.html

Will the COSATU of today wage an anti-VAT Campaign as it did on 5 November 1991? At the time, the labour movement called a two-day nation-wide strike to demonstrate its opposition to government’s intention to impose VAT on basic food stuffs, healthcare and essential services.

“Cosatu will not support any attempt by government to balance budget shortfalls and deficits upon the backs of struggling workers. Workers are not the ones who have looted Eskom, SAA and the state.”

“Any increase in taxes on the poor will further condemn them to hunger and stifle economic growth. Government must remember workers are voters and they are tired.”

We wait and see what form this opposition to the increase in taxes will take.

Here’s the full article Lifting The Lid On A Vat Increase

http://www.wits.ac.za/news/latest-news/in-their-own-words/2018/2018-02/lifting-the-lid-on-a-vat-increase.html

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2 Comments

  1. My suspicion has always been that one of the reasons VAT has remained at 14% for so long was because of the power of labour with COSATU being the leader.

    The decline in their fortunes and influence has left a vacuum which made this current increase an easy target.

    Is there a reason the corporate tax remains the same?

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