The exemption-ridden UK value-added tax (VAT) regime is considered a prime example of how not to operate VAT. Well-intended exemptions for food, children’s clothing and so on cause a legal and operational quagmire. Such exemptions have been shown in absolute terms to benefit the richest big spenders most and deprive the state of funds that could be used to benefit the poor.
For efficient minimal-exemption VAT regimes Singapore, New Zealand and Jersey are examples, and in each case the poor are compensated.
Two other benefits of VAT deserve mentioning: everyone pays VAT, including the rich with clever accountants who might avoid income tax. Second, substantial revenues are derived from tourists, meaning less needs to be found from residents.
The South African Revenue Service and trade unions should get together to agree on a modern VAT regime to benefit both the exchequer and the poor.