It is high time we all understood some simple stark realities about VAT.
On paper there is the argument that RSA’s VAT rate is to low. By as much as 3%, perhaps. But that’s about as far as the argument goes.
A move to increase the VAT rate will cause social unrest in RSA on a massive scale. Far greater than the student protests of recent weeks. The unions wont have it. And there I say the argument ends.
Some say that the effect of a higher VAT rate on the poor can be compensated with a widening of the zero rating provisions on basic foodstuff. That’s sounds logical. But it isn’t. All the research shows that general exemptions help the rich as much as the poor.
I can buy fillet steak zero rated at over R100 per kilo. While poor South Africans buy offal at perhaps R20 per kilo, zero rated by the same exemption. That’s just bonkers.
And we can’t cut up the animal into variable VAT rates. Just imagine the tax planning that would cause.
If you want to help the poor it must be done with targeted interventions and not general tax exemptions.
But surely there is the case to be made for higher VAT rates on luxury items like sports cars, perfume, tobacco and booze? No! That’s already dealt with by ad valorem duties. Tax on cigarettes and booze is already over 50 percent of the retail price.
If there is ever to be a VAT increase in RSA it will have to be coupled with the delivery of a major benefit for all. That would probably be national health insurance “NHI”. But that’s years off.
One has to realize that tax is a democracy. In the VAT debate we have 5 million income tax payers versus 54 million VAT payers. It’s a no-brainer, despite what economists will tell the world.