Picture: ISTOCK
Picture: ISTOCK

Civil society and trade union organisations strongly opposed the increase in VAT from 14% to 15% announced in the February budget and which came into effect on April 1.

They made submissions during a public hearing by Parliament’s finance committee on the draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill, which contains the VAT increase.

Civil Society Coalition spokesperson Neil Coleman called for the VAT rate to be returned to 14% in April next year and for the list of zero-rated basic goods to be expanded. He said the increase in the VAT and fuel levy made the tax mix more regressive, increased taxes paid by the poor and low-income households, and reduced their spending.

"The tax increase is projected to raise the share of VAT in the overall tax mix and hence the share of tax contributed by the poor and low-income households — this makes the tax mix more regressive," Coleman said. Alternatives to the VAT hike needed to be seriously considered.

Union federation Cosatu ’s parliamentary co-ordinator Matthew Parks said the VAT hike was a blow to workers who were being made to pay for the mismanagement of the state and for the sins of a "rapacious political elite and their lecherous friends".

"We feel there were many alternative options to address the [revenue] shortfalls, albeit requiring harder work and creativity," Parks said.

Cosatu recommended that the VAT increase be cancelled and replaced with an increase of the corporate tax rate from 28% to between 30% and 32% to raise between R13bn and R26bn; an increase in capital gains tax to 45% to raise R4bn; and an increase in personal income tax for earners of more than R1m annually to 45% to raise R5bn. Estate duties and inheritance taxes should also be raised.

Parks called for a crackdown on customs fraud, especially related to tobacco and clothing, and more intensive efforts to combat illicit financial flows. Furthermore, he proposed the introduction of a higher rate of VAT — possibly 20% — on luxury goods and the zero-rating of more necessary items.

Faith-based Pietermaritzburg Agency for Community Social Action (Pacsa) advocacy and research officer Julie Smith noted that the one percentage point rise in VAT had resulted in a 6.5% (R221.59) increase in the total VAT levied on foods subject to VAT in the Pacsa food basket. Twenty of the 38 foods in the Pacsa food basket are subject to VAT and 18 are zero-rated.

She argued for the removal of VAT on all food, highlighting the "massive food affordability crisis" the country faced.