VAT hike 'constitutionally suspect' — SA Human Rights Commission

The hike was announced in former Finance Minister Malusi Gigaba in the 2018 Budget. (Bloomberg)

The hike was announced in former Finance Minister Malusi Gigaba in the 2018 Budget. (Bloomberg)

The South African Human Rights Commission (SAHRC) has criticised government for its decision to raise the Value-Added Tax (VAT) rate by the one percentage point in April, arguing it is a regressive tax hike that appears to be ‘constitutionally suspect’.

The VAT rate was raised from 14% to 15% on April 1, 2018, the first change since 1993.

The hike was announced in former Finance Minister Malusi Gigaba in the 2018 Budget. Gigaba, who was replaced as finance minister by Nhlanhla Nene shortly after his Budget speech, said the VAT hike was expected to raise an additional R22.9-billion for the state’s coffers.

While Gigaba argued at the time that the hike was “unavoidable if we are to maintain the integrity of our public finances” the SAHRC said in its latest Equality Report released Thursday that the tax hike was regressive, and would impact the poor the hardest.

“The poor cannot be expected to bear the burden of catalysing radical socio-economic transformation. Before regressive measures such as an increase in VAT can be justified, government must demonstrate that it expends its resources proportionately to socio-economic need, effectively and efficiently,” read the report.

It also hit out at the government over its lack of planning.

“The feasibility of mitigating the effects of a VAT increase for the poor, including the expansion of zero-rated goods and the expansion of social protection, should have been investigated by all relevant organs of state prior to the announcement of an increase in VAT.”

“Wide-spread findings of irregular and corrupt expenditure at various levels of government render fiscal policy decisions such as an increase in VAT constitutionally suspect.

Recommendations

The commission recommended that, in light of the VAT hike, SA’s social grant system be “further expanded to accommodate able-bodied, poor adults – including unemployed youth – who do not currently qualify for a specific social grant or social security”.

It also ruled that National Treasury must report back on measures considered or taken to increase tax revenue in while “minimising any detrimental impact on the rights of the poor” within three months.

President Cyril Ramaphosa, meanwhile, on Friday announced that government would later in July be announcing a package of economic measures to cushion the public from the effects of high fuel price hikes and the VAT. — Fin24

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