Hard sell: ANC secretary general Gwede Mantashe says the party will discuss the possibility of raising value- added tax during its January lekgotla
ANC secretary general Gwede Mantashe has given the strongest hint yet that an increase in value-added tax might be on the cards.
This is despite labour federation Cosatu warning against the move, arguing it would have a negative effect on the poor and economically vulnerable.
In an interview with the Mail & Guardian on Thursday — a day after Finance Minister Pravin Gordhan delivered his medium-term budget policy statement — Mantashe said he would support an increase in VAT by one percentage point as part of the government’s plan to boost declining revenues.
VAT replaced general sales tax in 1991, at a rate of 10%. It was increased to 14% in 1993 and has remained static ever since.
Gordhan this week said there would be additional tax increases of about R43‑billion in the next three years. But he would not say which tax measures would be considered. Gordhan has previously said raising VAT would be a regressive move, because it would hurt low-income earners than high-income earners.
However, the February budget documents do not rule out a VAT hike as a possible way to raise revenue.
The February budget allows for R15‑billion in unspecified tax measures in 2017 and a further R15‑billion the following financial year.
In a note, Nomura emerging markets analyst Peter Attard Montalto said a one percentage point increase in VAT would equate to roughly R15‑billion in additional revenue.
Mantashe said he supported Gordhan’s plans to increase tax, telling the M&G the ANC would discuss suggestions to increase VAT by one percentage point during the party’s annual lekgotla in January.
“You can increase rebate tax a bit, or personal tax. We can even increase VAT by one percentage point. We [ANC national executive committee members] are going to begin to compare notes to say what must happen,” said Mantashe.
He was not surprised that Cosatu would oppose moves to increase VAT because it represented trade unions.
“When I was general secretary of the NUM [National Union of Mineworkers], that’s what I would say first. Now I have the responsibility to think bigger and nationally. You can’t increase it [VAT] by more than one percentage point. It’s already at 14%. We are going to have a discussion as the ANC, which will include Pravin Gordhan. He is a member of the ANC,” said Mantashe.
ANC head of economic transformation Enoch Godongwana said it was incorrect to adopt a blanket approach against VAT increases.
“The assessment must be based on tax incidence. Which items will see the increases and which ones will be zero-rated? Which classes will carry the burden of the increases? In other words, is the increase consistent with the principle of progressive taxation?” said Godongwana. — Additional reporting by Lisa Steyn and Phillip de Wet