VAT zero-rating proposals welcomed – SAFTU

Federation however says this change will do little to change the crisis facing SA's poor majority

SAFTU statement on VAT zero-rating proposals 

14 August 2018

The South African Federation of Trade Unions supports the call for Value Added Tax zero-rating on white bread, white flour and cake flour, sanitary pads, school uniforms and nappies, which has been recommended by a panel of experts appointed by Treasury, and demands that Finance Minister Nhlanhla Nene implements this proposal immediately.

The federation welcomes any move, however small, to improve the lives of South Africa’s poorest families, but this change will do virtually nothing to change the crisis facing South Africa’s poor majority and to rescue them from grinding poverty and the struggle to survive from day to day.

A report by the Institute for Economic Justice identified 23 categories of goods and services that could be zero-rated. These include items which disproportionately benefit poor and low-income households, women and children, or advance the constitutional rights of inequality, health, access to education, and dignity. 

These items were: cake and bread flour; Sorghum meal/powder and mabella; poultry (incl heads and feet); mopane worms; other canned fish; whiteners (cremora; ellis brown); amageu; baby food; powder soup; instant yeast; soya product (excluding soy milk); tea; infants and children’s clothing and footwear (include school uniforms); candles and matches; coal and other household fuel; hotplates; soap; medicine and medical services in public institutions; calls (including airtime for cellular phones); textbooks and stationery; disposable nappies; sanitary towels and tampons; and agricultural own production.

SAFTU condemns the fact that this list of 23 was reduced to just eight and demands that these be added back. 

It will certainly not retrospectively justify the decision announced in the budget in February to raise VAT from 14% to 15% from 1 ApriI 2018, which SAFTU condemned then as an assault on the living standards of the poor, and which we continue to demand be reversed.

VAT is an inherently regressive and unfair tax, as it is paid at the same rate by the rich and the poor, millions of whom earn too little to pay income tax. 

And the poor will still be worse off than before the 1 April VAT increase. The panel calculates that its recommendations would save the poorest 70% of South African households a total of R2.8 billion. But this is still lower than the extra tax burden of R3.1 billion that the higher VAT rate imposed on the poor.

The new zero-rating would also benefit the rich more that the poor.

As the report says: “In rand terms the rich almost always benefit more from zero-rating than the poor, because they account for a much larger share of total spending. Even when the poor spend a larger share of their income on a good, zero-rating it usually means high-income households get more tax relief in money terms. For currently zero-rated goods, households in the poorest 10% spent around R830m in 2014, while households in the richest 10% spent R1.3bn. For goods that were not zero-rated, the poorest decile spent R3bn, while the richest spent R87bn.”

This means that in this, already the world’s most unequal society, inequality will widen even further. 

There can be no justification for taxing the poor at all in a country where about two-thirds of South Africa’s wealth is held by the top 1% and about 90% by the top 10%”., a country in which the top 49 wealthiest men, and one woman, could use their collective wealth of R329 billion to pay 1 million people the new national minimum wage for eight years. 

They can obviously pay more tax, yet one of these 49, mining billionaire Patrice Motsepe, is advising government to offer more tax breaks to the rich, so as to make the country a more globally competitive investment destination!

If the government was at all serious about cutting poverty and inequality, instead of  tinkering with zero-ratings they would be implementing the policies agreed at the Working-Class Summit on 21-22 July, that included:

1 The introduction of a wealth tax 

2 The introduction of a solidarity tax 

3 A review of the corporate taxes that were around 45% during the apartheid era but driven down to around 28% during the era of democracy. 

4 A review of the personal income tax to ensure that those who can pay more make more contributions to the fiscus 

5 Capping the salaries of those earning grotesque amounts

6 A living national minimum wage

7 A basic income grant for all 

8 The full implementation of the Freedom Charter’s call for the national wealth of our country, the heritage of all South Africans, to be restored to the people

In the longer term however there will never be a fair system of taxation unless there are fundamental changes in the way the economy is structured. So long as unemployment stands at one of the world’s highest levels - 37.2% by the expanded definition, and so long as 82% of all growth in wealth does to the top 1% while the bottom half saw no increase at all, as happened in 2017, we shall never create an equal society.

We shall only see inequality widening even further, and poverty spreading and deepening for as long as the ANC government is ruled by the dictates of credit ratings agencies who demand austerity budgets, public sector spending and job cuts.

As SAFTU President Mac Chavalala said in his keynote speech at the Working-Class Summit: “As the working class we have been on a junk status for far too long. We are not here to moan but to announce a radical and revolutionary programme that will unite ourselves behind common demands and mass programme of mobilization. 

Our warning to all those who seek to keep the status quo is simple – the holiday is over! From now going forward, we will engage you in the streets and the boardrooms.” 

Issued by Patrick Craven, SAFTU Acting Spokesperson, 14 August 2018