The South African government should stop cutting the personal and company income-tax rate but value-added tax (VAT) should be cut by 1% from 14%, according to the People’s Budget.
At a briefing at Parliament on Monday — ahead of Minister of Finance Trevor Manuel’s Budget speech on Wednesday — the People’s Budget noted that the government argues that VAT is “a highly regressive form of taxation which weights more heavily on the poor than on the rich”.
The People’s Budget is presented annually by the South African Council of Churches (SACC), the South African Non-Governmental Coalition (Sangoco) and the Congress of South African Trade Unions (Cosatu), which is an alliance partner of the ruling Africa National Congress.
Speaking on behalf of the group, Sangoco’s Zanele Twala — who was flanked by Cosatu’s Elroy Paulus and the SACC’s Reverend Molefe Tsele and Doug Tilton — said: “At the same time, it [VAT] starves government of the resources needed to lay the foundations for sustainable growth.”
The People’s Budget drew attention to the fact that as a percentage of annual income, those earning the least pay the most VAT. For example, with a household income of R18Â 000 a year, R1Â 799 is paid in VAT, or about 10%. With a household income of R140Â 000 a year, about 7% is paid, or R10Â 241.
The People’s Budget said: “We reiterate our long-standing request for the introduction of a variable-rate VAT that would exempt more basic commodities and impose a higher rate on luxury goods.
“We call for a 1% decrease. Such a people’s tax cut would cost the state between R9-billion and R10,4-billion in 2006/07, depending on the impact of the reduction on the demand for goods and services.”
The impact of the changes proposed by the People’s Budget would reduce the tax burden on the poorest households and shift roughly R66-billion of the total revenue burden to upper-income households and companies, the three organisations argued.
This would be “substantially less” than the R72-billion in tax cuts they have enjoyed over the past decade, they said. — I-Net Bridge