AYABONGA CAWE: Regressive VAT burdens the poor and spares the rich
Many 'establishment' economists have suggested zero rating would somehow mute the regressive nature of the measures but this overlooks how the poor spend
Value-added tax (VAT) is regressive. South Africans knew this in 1991, when the last National Party administration tried to sneak in VAT as a change to the general sales tax (GST) without meaningfully consulting key stakeholders, most notably labour. Multiple mass actions later, the 14% VAT eventually came into effect in 1993. For some perspective on the history, in 1978 GST (far narrower in scope and coverage) stood at 4%. In the tough economic climate of the late 1980s it shot up to 13%, borne largely by the working poor. There was some zero rating and exemptions. However, these didn’t make it less regressive when viewed alongside other indirect taxes such as the fuel levy and excise duties on alcohol and tobacco (on which poor households spend disproportionately more). Those who suggest that zero rating mitigates the "regressiveness" of VAT miss two crucial points. First, the spending habits of the poor are not confined to a static list of zero-rated items. Second, the share of t...