As we brace ourselves for the 1 percentage point hike in VAT to add R22.9billion to the fiscus from April 1, there is no doubt that taxation’s main goal is to raise revenue for shared public programmes and services.
We can never avoid taxes. Many things purchased with tax funds, such as military equipment and salaries for civil servants, infrastructure, scientific research and other government programmes, would be impractical for us to pay for ourselves.
As another American, former Supreme Court justice Oliver Wendell Holmes once said: “Taxes are the price we pay for a civilised society.”
VAT funds things such as public schools and universities, social grants and other vital services.
In addition to raising money, VAT also serves other functions.
Sometimes taxes shift resources from wealthier citizens to poorer ones. This happens when taxes fund programmes such as social grants, which help low-income families buy the meals they need for good nutrition.
VAT also influences people’s choices. Higher taxes on cigarettes, for example, may discourage smoking.
Therefore, we can grumble about having to pay taxes such as VAT, but those rand pooled together buy a lot through our local, provincial and national government.
Central to our democracy is that paying taxes allows everyone to contribute into a shared pool of resources to provide the best possible services for all according to their needs.
There is a strong element of redistribution built into this model. For example, all of us benefit from the next generation being well educated, when those without children pay tax to provide childcare and education for those with children.
Conversely, the reality of individual choice can mean those on low incomes are left with no choice at all if they do not have the means to provide for their needs and those of their families.
That is why the SA Revenue Services (Sars) has the hardest task of carrying out the tax laws, including VAT.
For Sars, managing taxes for a country ranked as the seventh with low VAT rates, no taxpayer is above the law, not even the wealthiest or best connected. If people evade the tax laws, they effectively cause others to pay more to make up the difference.
Although we don't like paying taxes, we usually do it anyway. If we don't, the law imposes civil and criminal penalties, hence the Association of Black Securities and Investment Professionals (Absip) believes increasing VAT is unavoidable. A country cannot carry on without VAT.
As a strong proponent of reducing poverty and the inequality gap in South Africa, we told the Davis Tax Committee that increasing VAT while at the same time significantly increasing social grants to the poor would help in reducing the inequality gap and in offsetting the increased VAT incurred by the poor.
After all, with the wealthiest 30percent of households contributing 85percent of VAT, they consume more goods and services, and so the higher VAT burden falls on them.
Taxes on wealth, such as capital gains and property levies, would be less regressive than consumption taxes and have a more positive economic effect.
It must be borne in mind that wealth tax, apart from potentially chasing away much-needed investor capital, will be another administration burden for the wealthy and add to the likelihood of investor and capital flight.
Absip acknowledges that the wealthy accumulated their wealth by keeping away 91percent of the population from competing with them. The wealthy have for many years transferred this accumulated wealth offshore so this may result in further capital flight and reduced investment. Therefore, some amendments need to be made to the zero-rated and tax-exempted goods and more added to the list.
According to Sars, there are 19 basic food items that are zero-rated. They include brown bread, maize meal, samp, mealie rice, dried mealies, dried beans, lentils, pilchards and sardines in tins, milk powder, dairy powder blend, rice, vegetables, fruit, vegetable oil, milk, cultured milk, brown wheaten meal, eggs and edible legumes and pulses of leguminous plants.
It is a pity that the poor and least well-off will pay more tax as they spend most, or all, of their income.
Beacuse of this, they attract more VAT as a proportion of their income compared to people whose higher incomes permit them to save.
There is, therefore, no doubt that the groups hardest hit from an increase in the standard rate of VAT to 15percent will be households in the poorest income bracket. People on the lowest incomes may have no choice at all but to further lower their standards of living.
Of course, the impact of any budget is cumulative. And many of those who will bear the brunt of the latest VAT increase have already been hit by previous budgets.
So, how can zero-rating more basic foodstuffs cushion the cost on the poor?
Food price increases are a global problem fuelled by many things, including conflicts in some countries, dry weather conditions, competition from biofuels, rising oil prices - all affecting production, export and import costs.
For example, even though these basic food items are zero-rated, they are consumed by people who are already struggling to make ends meet.
Also, basic necessities such as water and electricity are not exempt from VAT. Indeed, a VAT increase places the elderly and indigent in a worse financial position. They are still expected to pay for electricity and medication that they are not always able to get from state hospitals.
Also, while bread is zero-rated, its ingredients such as flour and yeast are not, and thus this often pushes up the price of this basic necessity.
That is why the Rainbow Nation needs to increase food production to counter price rises by investigating the possibility of capping the prices of staple foods through legislation and providing food subsidies.
The government should look at the possibility of extending VAT zero-rating on more foodstuffs and providing food vouchers for the poor, the indigent and elderly, and provide help to offset soaring food prices for the vulnerable members of society who need urgent assistance.
Zero-rating more foodstuffs and other basic items will protect the poor.
Are we asking too much?
Sibongiseni Mbatha is president of the Association of Black Securities and Investment Professionals.
The views expressed here are not necessarily those of Independent Media.
- BUSINESS REPORT