Gordhan's tax hikes promise: It won't hurt the poor

2016-10-27 21:00 - Liesl Peyper
Minister of Finance Pravin Gordhan (Netwerk24) ~ Netwerk24

Cape Town – Tax increases next year will not hurt the poor, said Finance Minister Pravin Gordhan on Thursday. 

Gordhan and a delegation from National Treasury briefed a joint committee sitting of parliament a day after he had delivered his 2016 medium-term budget policy statement, also called the mini budget. 

In his mini budget speech, Gordhan said government intends on raising additional taxes to the value of R13bn in the 2017/18 financial year. He didn’t elaborate on the details, though, saying the particulars of tax increases are only revealed during the main budget review that takes place in February each year. 

READ: South Africans to pay more tax next year

At Thursday’s parliamentary briefing, David Maynier, DA spokesperson on finance, asked Gordhan if he is concerned about a possible tax revolt from already overburdened taxpayers. 

The South African Revenue Service (Sars) and National Treasury have been criticised for relying on a relatively small number of people to carry the bulk of taxes. According to reports, roughly 10% of the South African population pay 37% of all personal income tax in South Africa. 

Additional taxes are also charged in the form of value added tax (VAT) and fuel levies, while a sugar tax and carbon tax are also on the cards. 

READ: Gordhan squeezes taxpayers to avoid SA junk rating

Gordhan, however, was adamant that South Africa’s tax system is not hurting middle to lower income groups. “I’m not worried about a tax revolt. We have a transparent tax system and citizens can approach Parliament to air their views regarding proposed taxes,” he added. 

National Treasury director general Lungisa Fuzile, who was also part of the delegation who briefed MPs, said raising VAT would have a negative impact on economic growth as it could dampen household spending. 

The Davis Tax Committee suggested in a report that a VAT hike would have the least negative effect on income equality in South Africa, while a hike in personal income tax or corporate income tax would be more harmful. 

Gina Schoeman and Adriaan du Toit, both economists from the global bank Citi, however, argued in a company note that a VAT hike would elicit a negative socio-political response. 

In addition, an increase in VAT could also have economic repercussions in that it could push up the 12-month consumer price index, which in turn infringes on household disposable income growth and GDP growth. 

* Missed Gordhan's mini budget? Get all the action right here, including the budget live stream.

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