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Cape Town – Treasury’s efforts to lessen the negative impact of the increase in value-added tax on poor and vulnerable households has come under fire, as civil society groups challenged the terms of reference for its newly-appointed panel.
Treasury issued a statement this week announcing that Finance Minister Nhlanhla Nene has appointed a panel of experts to review the list of zero-rated VAT items.
The panel is mandated to also consider the “most effective” way to mitigate the impact of the VAT increase on poor and low-income households.
Neil Coleman, who represented civil organisations at a hearing by the standing committee on finance (Scof) on Wednesday, welcomed the establishment of the panel.
However, he believes its terms of reference are limiting. According to Treasury, the review process will be conducted "within the confines of the current fiscal framework".
“We are concerned about the terms of reference,” said Coleman. He said the mandate effectively “ties the panel’s hands” and will prevent it from looking into recommendations to provide “substantive relief” for low-income earners.
He also took aim at the idea that either zero-rated items or social grants could be the solution, as these should be complementary to each other and not mutually exclusive.
Matthew Parks, parliamentary coordinator of the Congress of South African Trade Unions, told Fin24 on the sidelines of the hearing that the labour federation is concerned that the terms of reference may be limited and need a broader scope.
Cosatu will make submissions to the panel and will engage with Treasury through the National Economic Development and Labour Council.
Based on the submissions made during the course of the day, Scof chair Yunus Carrim called out Treasury to “come to the party” on VAT. He noted that the civil society coalition has made “shifts” in its proposals and that Treasury is required to do the same. He said he would raise the matter with the finance minister.
In turn, Treasury deputy director general Ismail Momoniat told Fin24 that Treasury is open to reviewing the terms of reference, but said that it should not delay the process as the VAT hike is a matter of urgency.
“Those that want better measures in place must conclude the process quickly.”
Momoniat added that the work of the panel does not necessarily have to end on the June 30 deadline, as medium- and long-term issues raised can still be addressed possibly in the mini budget.
The current terms of reference relate to the short term and are within a framework adopted by Parliament.
“It does not help to say you don’t like the tax, the challenge is how to fund the revenue gap. You can do it by cutting expenditure, but people must say where to cut expenditure and where to find alternative revenue.”
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