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Growing opposition to proposed VAT hike

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A number of civil society organisations are mobilising against the proposed VAT hike, which has raised the ire of most South Africans. In his budget speech last week, Finance minister Malusi Gigaba announced that a proposed Value Added Tax (VAT) increase from 145% to 15%, with effect of 1 April 2018. This is the first time VAT has been raised since the democratic dispensation.

The move has prompted an outpouring of opposition from civil society who feel poorer households will be the hardest hit. Since the announcement, a public petition was launched on Amandla.Mobi which has garnered 50 000 signatures. The 36 organisations include Unite Behind, Alternaitve Information & Development Centre (AIDC), Equal Education and Section 27 amongst others.

“We disagree with the Minister that the proposed rise in VAT from 14% to 15% will have limited impact on the poor. While the majority of VAT revenue will naturally come from wealthier people who earn and spend more, the Minister acknowledged that his VAT proposal will increase the cost of living for all households.

However, some are hit harder and the ability of households to afford the increase is different across income groups. 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%,” said a statement from the coalition.

Gigaba said the VAT increase will not affect the poor because there are 19 basic food items that are zero-rated. This means that low-income household items such as maize-meal, brown bread, rice will not see price increases. But some economists have dismissed this argument, saying that other essential items in the average consumer’s shopping basket will see a marked increase in price.

“People cannot survive on only 19 types of food and also need school uniforms, sanitary pads, toiletries and many other things that are not VAT exempt. What is more government could instead redouble efforts to crack down on some ultra-rich South Africans and companies who are avoiding paying tax. We all have to pay our fair share,” said the organisations.

Viewed in context
The VAT hike, together with increases to the fuel levy and excise duties, must be seen in the context of the costs of livings faced by the poorest. According to the organisations, the minister’s decision does not consider 5 million children living below the bread line, whose caregivers are unable to provide them with sufficient food, leaving aside the additional costs of transport, clothing and shelter.

“The proposed fuel levy increases exacerbate this burden, as, owing to apartheid’s spatial legacies, poor families already spend a disproportionate and crippling share of their disposable income on transport,” said the statement.

“Together with the tax hikes the limited increases to social grants will further erode the spending power of the poorest. The 5.6% increase to pension grants (until October 2018) is, on its own, below levels of inflation faced by the poor.”

The civil society formations have also sent a letter to the chairpersons of the Finance and Appropriations Committees in National Parliament voicing concerns at the regressive taxation measures proposed in the 2018 Budget Speech. The letter states that while they recognise the need to raise additional revenue for the national fiscus, the proposals made to Parliament by Minister Gigaba makes the tax regime “more regressive” and stand to exacerbate already unacceptably high levels of poverty and inequality.

“A reconsideration of the tax regime is not a matter to be taken lightly, and therefore not a matter National Treasury can unilaterally decide on. Such decisions can only be made after their potential effects, particularly for the most vulnerable, have been assessed and exhaustively debated, and where the proposed changes are demonstrated to be in the interest of realising a more equal society.”

The organisations demands are:
-A comprehensive consultation process on all proposals to amend the tax regime prior to the enactment of any proposed changes.
-National Treasury to present their evidence that VAT will only have a limited impact on the poor, and to demonstrate that all other options would be of greater detriment to the most vulnerable.
-National Treasury to explain which other options have been considered and why the existing proposals were adopted.
-National Treasury to demonstrate that the regressive tax measures, coupled with the proposed austerity measures, will indeed protect frontline services.
-Parliamentary committees to exercise their powers to amend or reject regressive tax proposals.
-The country’s political leadership to take responsibility for the billions stolen over the past years by setting an example through reducing their own salaries, including those in Parliament.

To sign the petition, click here:


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