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'Why the VAT rate will never be reduced'

Mar 04 2018 15:04

Labour Q&A with Terry Bell

In Terry Bell's column "Inside Labour: VAT a time bomb continuing to tick", he notes that the value-added tax (VAT) - and the fuel levy hike - is the clearest example of how the tax regime makes working people bear the burden for maladministration and corruption not of their making.

This comes as the government announced a VAT increase of 1% to 15% after more than two decades.

A petition, signed by thousands of individuals and supported by labour, human rights and anti-poverty organisations, rejected the VAT hike and called for more time for public submissions on the financial proposals.

However, Bell says regressive measures such as VAT will be implemented. "So much for democracy and the will of the people."

Responding to Bell, Fin24 reader Wayne Gray suggests the poor and working class will forever contribute a disproportionately large VAT amount to the country’s fiscus. He writes:

Hi Terry,

Do you think the VAT rate will ever come down again? I doubt it.

However, the personal tax rate or marginal rate will inevitably be reduced as GDP (gross domestic product) increases in future, because government will be keen to boast that it is taxing its citizens less, a boast made proudly, for example, by Trevor Manuel when he was minister of finance.

The reduction in the marginal rate in future will positively affect high income earners like government ministers, who have a vested interest in reducing these rates.

Corporate taxes too will eventually come down, because inherent in neo-liberal thinking on tax regimes is that the lower the corporate tax rate, the higher the economic activity, with concomitant creation of jobs etc.

This is, however, a false conclusion, which you have written about previously, because big capital's drive to mechanise (which increases net profit), results in the loss of jobs forever and the reduction in the corporate tax rate simply results in an even further increase in net profit.

Note that Warren Buffet's Berkshire Hathaway released its results and disclosed an increase in earnings per share which it mainly ascribed (with some embarrassment, as is Buffet’s coquettish way) to US President Donald Trump’s reduction in the corporate rate of taxation.

In summary, I believe that the higher earning citizens and corporates will in future pay less tax as GDP grows, and the poor and working class will forever contribute a disproportionately large amount to the country’s funding requirements because the VAT rate will never, in my view, be reduced.

Axiomatically, higher earning citizens and corporates will, as GDP grows, benefit exponentially at the expense of the poor and working class.

* Add your voice or just drop Terry a labour question. Follow Terry on twitter @telbelsa.

Disclaimer: All articles and letters published on Fin24 have been independently written by members of the Fin24 community. The views of users published on Fin24 are therefore their own and do not necessarily represent those of Fin24.


sa economy  |  vat  |  taxes
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