Since the announcement in the finance minister’s budget speech of the increase in value-added tax (VAT) from 14% to 15%, comment on the effect of the hike has focused on three questions: Is VAT regressive? Will it place an unfair burden on the poor? Can zero-rating be extended to ameliorate the effect on the poor? The evidence is quite clear. VAT is not regressive; it is very slightly progressive. The richest decile in SA pays about 12% of its disposable income in VAT, while the poorest decile pays about 9.5%. VAT efficiently raises a large amount of revenue from the wealthy. For the forthcoming one percentage point increase, revenue will increase by about R22.9bn. SA’s income deciles 1-9 will pay about R9.26bn (43.34%), while decile 10 (the richest) will pay R13.63bn (56.66%). The poorest will pay just more than R1m. Notwithstanding this evidence, there is still a great deal of concern about what the effect will be on poor households. The table shows the costs of the VAT increase f...
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