Finance Minister Enoch Godongwana is expected propose a gradual increase in VAT over the next two years, starting with a smaller hike of 0.5% this year.
Image: Phando Jikelo/ Parliament of SA
Finance Minister Enoch Godongwana is facing criticism from his coalition partners in the Government of National Unity (GNU) and ANC Alliance partners Cosatu for not consulting widely enough on his plan to increase Value-Added Tax (VAT).
Godongwana is expected propose a gradual increase in VAT over the next two years, starting with a smaller hike of 0.5% this year, when he presents his budget on Wednesday.
The finance minister's budget speech was postponed last month after DA and other GNU partners refused to allow for a 2% increase in VAT, saying this hike would have disproportionately affected poor and low-income families.
Those opposed to a VAT hike, even an incremental increase, continue to argue that Godongwana should have consulted more widely and considered alternative proposals for funding the budget.
Godongwana has reportedly defended his proposal, saying that he only needed to consult with President Cyril Ramaphosa and the ANC's top seven officials, who had given him the green light.
However, his coalition partners are disputing this, saying that the tradition of consulting on the budget is not limited to the ANC's top leadership.
DA's leader John Steenhuisen and the party's clearing house representative, Helen Zille, have both expressed reservations about the VAT hike, saying that they were not consulted enough on the proposal.
DA Spokesperson on Finance Mark Burke said the ANC is willing to risk South Africa’s economic stability in a desperate attempt to force a VAT increase down the throats of South Africans.
"The DA continues to advocate for credible pro-growth, pro-jobs and actual alternatives that focus on efficiency. We can do this by spending smarter and capacitating SARS, rather than raising taxes on a struggling economy."
Cosatu spokesperson Matthew Parks has also criticised Godongwana for not engaging sufficiently with stakeholders on alternatives to the VAT hike.
“We hope that further engagements will take place, including after the budget has been tabled at Parliament to ensure that we review the totality of government expenditure and revenue options.
"We can move towards a budget that eases the burden on workers, ensures the wealthy pay their fair share, that capacitates the state to deliver quality public services that working class communities and the economy depend upon, that stimulates badly needed economic growth and slashes unemployment, whilst protecting and providing relief for the poor,” Parks said.
He added that the federation remained opposed to any VAT hike, both for the current and future financial years as it would further 'deplete workers’ already meagre wages and spike inflation'.
GOOD secretary general Brett Herron has warned that if Godongwana persists with the VAT increase, it could spell disaster for the coalition.
"If the Minister of Finance is persisting with a VAT increase, then he is not listening to his coalition partners.
"VAT is the wrong way to increase revenue. It is a lazy, crude and irresponsible way to increase revenue. It is a regressive tax that disproportionately affects poor, low-income and middle-income families,” Herron said.
GOOD, like other parties, have made alternative proposals for keeping the spending priorities as proposed in the budget speech that was not delivered, but funding it in other ways including improved tax compliance which would boost SARS revenue by about R400 billion.
“Improve tax anti-avoidance capacities at SARS. Reducing the tax credits threshold for retirement contributions which at R350,000 per year are too generous and make virtually all retirement contributions tax deductible, and then in the outer budget years implementing a wealth tax,” Herron suggested as alternative solutions to a VAT hike.
Godongwana has argued that there was little room to raise other taxes, and that ending medical tax credits or raising the corporate tax rate would hurt lower-income families and the economy.
Political analyst Ntsikelelo Breakfast said the GNU was on the verge of collapsing because of the VAT issue, among others.
“The GNU is about to collapse. It will be interesting how things are going to play themselves out because some of the ANC politicians feel undermined.
"It is not only the withdrawal of the DA in their support of the budget but also the DA having gone to the US after AfriForum had also gone there…because how do you go to another country and bad mouth a government that you are a part of…so to me that was the straw that broke the camel’s back.
“There is a view in some quarters for the ANC to walk out of the GNU…for the ANC to walk away from the DA and form an arrangement with the EFF, which has declared that they are ready to work with the ANC."
Breakfast said Godongwana and the ANC find themselves in a dilemma as the DA has declared in public that they are not going to support any VAT increase.