The Impact Of VAT
– On The Ordinary South African
There is a massive gap in the country’s finances, to put it bluntly. South Africa has an R48-billion hole in the fiscus that needs to be filled, and part of Finance Minister Malusi Gigaba’s solution in the previous 2018 Budget speech was to push up value-added tax (VAT) by one percentage point, to 15 percent, as of April 1, 2018. This is the first increase in VAT in 25 years.
But what does this increment mean to taxpayers? Will poor South Africans suffer even more, or is this the way for the fiscus to make up its financial shortfall, with the VAT increase affecting the rich the most, as government insists it will?
Deloitte: ‘VAT affects both rich and poor’
Billy Joubert, a director and transfer pricing expert at Deloitte SA, said the reason for the increment was due to the revenue shortfall. There’s a big gap between the revenue that was budgeted to be collected by government and what was actually collected – and as he puts it, “too much was going out”.
‘VAT affects everybody that spends money, rich and poor’– Deloitte SA
“It was considered necessary to find the revenue elsewhere to contribute to the additional R36-billion which is needed. But VAT affects everybody who spends money, rich and poor.”
However, Joubert emphasised that not everything you spend on will be affected – essential items and services such as zero-rated foods, rent and accommodation, interest on loans and school fees are all exempt.
South Africa’s VAT regime includes 19 basic foodstuffs that are zero-rated to help limit the impact on poor households: among them mealie meal, rice, brown bread, dried beans, fresh fruits and vegetables, samp, vegetable oil, eggs, milk, tinned pilchards, dried mealies, powdered milk, dairy powder blend, lentils and brown wheaten meal.
However, Joubert highlighted that there are other items which are not exempt from tax – such as clothing and cleaning products – which meant that, inevitably, everyone would suffer.
‘VAT increment was unavoidable … It is better to spend less than trying to squeezing taxpayer harder’– Deloitte SA
“[VAT] will inevitably affect everybody – there is a logic that poor people [only] spend income on essential items that are not subject to VAT – but it does have an effect on poor people. Essentially, everybody suffers”.
Joubert said that the “VAT increment was unavoidable” – but that it was important “to control the expenditure side of things”. The things ramping up expenditure in the SA economy, he believes, are corruption, the costs of corruption, and a bloated cabinet.
“It [would be] better [for government] to spend less, rather than trying to squeeze taxpayers harder,” he said.
Pacsa: ‘Poor people don’t buy zero-rated items only’
Pacsa, on the other hand – the Pietermaritzburg Agency for Community Social Action – feels that the assumption that the working class only buy zero-rated items is flawed.
‘The underlying assumption of the “experts” is that working-class households only eat zero-rated foods. This assumption is flawed’– Mervyn Abrahams, Pacsa.
HuffPost spoke to director Mervyn Abrahams, who said: “Poor people don’t buy zero-rated items only.” Every month, Pacsa checks the price of a 38-item food basket that working-class households have identified as the foods they need.
They came to the conclusion that 20 out of the 38 foods are subject to VAT, and 18 – less than half – are zero-rated. Of the total cost of the basket at R3,129.84, a 15 percent VAT component is R221.59.
‘The logic of thinking that increasing the VAT rate will have no impact on working-class households because certain foods are zero-rated reveals a lack of understanding’– Mervyn Abrahams.
“In order to provide a meal, the working-class households don’t just use zero-rated foods. A mother does not send her child to school wi
th a few slices of brown bread.”
“She sends her child to school with a sandwich – that in addition to the brown bread will require margarine, peanut butter, or jam, cheese, polony… These are all subject to VAT,” Abrahams said.
Abrahams said that thinking a VAT increase will have no impact on working-class households because certain foods are zero-rated reveals a lack of understanding. He posed the question – are economic experts trying to say that the working class only eats exempted food?
“All of our basic foods (even the zero-rated foods) require a cooking process to be made into a meal – and this requires water and electricity, which is subject to VAT.”
Petrol, the price of which was also increased in the budget, is subject to VAT too, which thus has an effect even on zero-rated goods, as transport costs increase.
Abrahams closed by saying the only way in which the working-class households would escape the VAT increase announced in the Budget, would be if all foods were zero-rated.
article source : https://www.huffingtonpost.co.za/2018/02/26/the-impact-of-vat-on-the-ordinary-south-african_a_23370918/