Solidarity, AfriForum slam VAT hike
Trade union Solidarity has described Treasury’s proposal to increase value-added tax by 1% over the next two years as “unacceptable”.
Finance Minister Enoch Godongwana confirmed that South Africans will see a VAT increase as the government moves to raise revenue.
The tax will increase by half a percentage point in the 2025/26 financial year, followed by another increase the following year.
This will take VAT to 16% by 2026/27.
Godongwana tabled the budget in Parliament in Cape Town on Wednesday afternoon after the initial speech was postponed last month.
The union believes that if Parliament passes the budget in its current form, it would breach trust in the country’s political leadership, as the increase would push struggling households to a breaking point.
READ MORE: VAT to hit 16% by ‘26, as Godongwana defends hike
Solidarity's Theuns du Buisson said that no political party can accept the budget proposal.
"If the budget is accepted as it stands, it would cause a larger breach of trust in the political leadership. If the ANC does not resort to savings mechanisms themselves, political opponents should use the opportunity to force them to act responsibly.
"This is the least South Africans can expect from political parties in our Parliament."
Du Buisson added that the budget is also a slap in the face of taxpayers as tax brackets remain unadjusted, and medical aid tax credits have not been adjusted for inflation.
"The expectation that the VAT increase would yield revenue of R28 billion to be an overestimation in all likelihood. In the case of the previous VAT increase in 2018, revenue from the increase was disappointing.
"This is once again taking money from the pockets of ordinary South Africans rather than stopping wastefulness. It seems as if the Finance Minister is trying to turn the middle class into poor people as well.
"For this reason, this looks like a budget coming from a minister who is intent on destroying the country."
Meanwhile, lobby group AfriForum has also slammed Finance Minister Enoch Godongwana’s budget speech as a “direct attack on taxpayers”.
The lobby group said the government ignored alternative cost-cutting measures and failed to adjust tax brackets for inflation, further burdening struggling South Africans.
AfriForum's Louis Boshoff called on opposition parties and civil society to take legal action against the VAT hikes, warning of increased tax evasion, job losses, and emigration.
"AfriForum maintains that the refusal to introduce cuts to government spending, despite widespread opposition to the increase in value-added tax , will now put serious pressure on all citizens of the country.
"Godongwana has not made any inflationary adjustments to personal income tax brackets and rebates or medical tax credits for the second year in a row. Both these steps go against the calls of AfriForum and various experts."
Boshoff warns that these tax increases will lead to increased tax evasion and avoidance levels.
"Tax levels are being increased, while the average civil servant still earns R14,400 per month more than the national average salary. This is mainly driven by the hefty pay cheques of government ministers and other senior civil servants.
"From this, it is clear that no serious effort has been made to find alternative solutions.”
However, Efficient Group chief economist Dawie Roodt has suggested that South Africa should increase vallue-added tax while simultaneously cutting back on more harmful taxes, such as corporate tax.
Roodt argues that companies ultimately shift tax burdens onto individuals, making corporate tax less effective than a VAT increase.
However, he cautions that the increase should not be used to fund additional government spending but rather to replace other, more damaging forms of taxation.
"I think VAT should be increasing in South Africa, but, increasing VAT without any zero-rated items, it’s not a good idea. If you want to help the poor, rather do it on the expenditure side of the budget, but increase VAT and cut back on more damaging taxes.
"A company tax, for example, is far more damaging than an increase in VAT and remember, companies don't pay taxes. They shift the total tax burden down to individuals. So yes, you can increase tax, but not to increase spending. Increase tax, and you reduce some more damaging taxes, like company taxes."
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