VAT hike irks unions

2018-02-25 06:00 - Justin Brown And Maya Fisher-French
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SA Federation of Trade Unions (Saftu) leadership will meet next month and could recommend strikes to protest against the hike in the rate of value-added tax (VAT), Saftu general secretary Zwelinzima Vavi said this

“I will personally recommend that we strike against the increase in VAT,” he said.

Finance Minister Malusi Gigaba said this week that the government was going to hike the rate of VAT for the first time in 25 years to help plug a R48bn shortfall in revenue collections and pay for free tertiary education for poor and lower middle class households. VAT was first introduced in 1991 at a rate of 10% before it was increased to 14% in 1993.

Vavi said the hike in the rate from 14% to 15% was “extremely disappointing”.

The same people, including now President Cyril Ramaphosa, that backed the hike in the rate of VAT were the ones that had fought the apartheid government’s move to introduce VAT in the early 1990s, he said.

Former presidents Nelson Mandela and Thabo Mbeki had never touched the VAT rate because they knew what punishing effect it would have on the poor, Vavi said.

He said it was disingenuous for Gigaba to suggest that the wealthiest 30% of households contributed 85% of the VAT revenue as a means of showing that the rate wouldn’t “punish the poor”.

Sizwe Pamla, a Cosatu spokesperson, said he couldn’t say what action the trade union federation might take against the hike in the rate of VAT.

The Cosatu central executive committee (CEC) would meet from February 26 to February 28 and would discuss the latest budget speech.

“The CEC will guide us,” Pamla said.

In response to the VAT rate hike, Cosatu said this week: “We ... believe the decision to increase VAT is regressive in nature and does not address the circumstances in which South Africans find themselves.”

Dennis George, Federation of Unions of SA (Fedusa) general secretary, said the hike in the rate of VAT was “very unfortunate”.

It would be okay if tax rates increased and government services improved too, but this was not the case. However, when it came to things such as security, education and health, government services in this regard were poor and ordinary citizens needed to buy private services because the quality of government services was so poor. The government was also one that couldn’t be trusted.

“We are opposed to the VAT hike,” George said.

Fedusa will have a leadership meeting in March when the budget speech and the VAT rate hike will be discussed, George said. “We will discuss what action we will take then.”

Gigaba said during a media conference this week that the hike in the rate of VAT was not the first of many such increases in the VAT rate.

“This is not the first of many VAT rate increases under this administration. Government has been conservative enough in terms of VAT. The democratic government is raising the level of VAT for the first time since it came about in 1994. It is not something you play around with.”

“We’ve been sufficiently conservative up until a point where it became absolutely necessary to do this,” he said.

To try to soften the VAT blow for the poorest households, Gigaba announced above-inflation hikes in social grant values that would result in an extra R2.6bn going to social grants.

In explaining its decision to raise VAT by one percentage point to 15%, National Treasury indicated that it had run out of options on personal income tax. According to the Budget Review, South Africa’s personal income tax burden has increased from 8.3% of GDP in 2010/11 to 9.8% in this fiscal year. Last year a new top income bracket of 45% was introduced for individuals earning more than R1.5 million – this tax bracket of 109 783 taxpayers now contributes more than 26% of total personal income tax.

In weighing up its options, Treasury stated that “an additional personal income tax rate increase in 2018/2019 would have greater negative consequences for growth and investment than a VAT increase”. Treasury noted that the significant shortfalls from personal income tax in 2017/18 suggest that it is unlikely they can squeeze much more out of the taxpayer.

In the 2016/17 tax year personal income tax (PIT) made up 37.1% of gross tax revenue and VAT made up 25.3%. With the tax proposals in the 2018/2019 Budget Review, PIT will make up 37.6% of total gross tax revenue and VAT will make up 25.8%.

“We have increased personal income tax significantly in recent years, particularly at the higher-income bands and our corporate tax is high by international standards.

“We have not adjusted VAT since 1993 and it is low compared with some of our peers,” Gigaba said.

“We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances.

“The current zero rating of basic food items, such as mealie meal, brown bread, dried beans and rice, will limit the effect on the poorest households,” Gigaba said.

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