Poorer South Africans zero rate Gigaba for VAT hikes

Minister’s revenue demands hit low earners in pocket

● From walking to work to growing their own vegetables, South Africans are looking for ways to stretch their rands in anticipation of the VAT and fuel levy increases on April 1.

The rises angered a number of consumers who spoke to the Sunday Times this week, including Dennis Gumede, a bricklayer from Magaliesburg, Gauteng.

“Everything goes up but we have nothing,” said the father of three.

“There is no way for me to even save money. Nowhere. If I can find somewhere I can buy cheaper food then maybe I can save money, but now I can’t save. I have kids at school and I have to give money at home and for food, for soap, for everything,” he said.

Domestic worker Mpolo Mmakolobe was concerned about the cost of commuting. “The higher fuel levies are going to affect my pocket badly because taxi owners are going to increase their prices,” she said.

Colin Ntoko, from Johannesburg, said he would have to “cut DStv” , while Anele Malomane said he would take up backyard gardening because “you get fresher vegetables while you save”.

Finance Minister Malusi Gigaba said in his budget on Wednesday that the zero-rating of basic foods such as maize meal, brown bread, dried beans, rice, lentils, eggs, milk, fruit and vegetables would “limit the impact on the poorest households”.

But economist Gilad Isaacs, director of the Corporate Strategy and Industrial Development programme at the University of the Witwatersrand, said VAT tended to have a disproportionate effect on the poor.

The lowest 10% of income earners lost 13.8% of their disposable income to VAT and excise duty, whereas for the highest 10% the proportion was only 12.6%.

Isaacs said that it was too soon to say how much this would change after the increase.

The Pietermaritzburg Agency for Community Social Action, which tracks 38 essential food items in working-class households, said the VAT increase would increase the monthly cost of the basket by R14.77.

The agency said in a statement that the total cost of the 38 items — a combination of VATable and zero-rated — was R3 129.84 a month, of which the VAT component at 15% will be R221.59.

There was also a shift away from zero-rated items when fuel prices increased because zero-rated items could be fuel-intensive. Said Isaacs: “Beans are a zero-rated item but it takes a lot of fuel to cook raw beans. It’s not uniform, but what we see is that a fuel increase can shift people’s spending, and that shift can include a shift towards items that are not zero-rated.”

Economist Mike Schussler said the higher fuel levies would affect most people. The price of a loaf of bread, for example, could increase by 3c to 4c, and so would a lot of other food products.

“I don’t think the increase is that much that it will have a huge impact, but there will be a knock-on effect on all goods,” he said.

Hoodah Abrahams-Fayker, the national advocacy manager for Black Sash, said the poor would have to take out loans to keep up with tax increases.

“Social grant beneficiaries already struggle to make ends meet,” she said.

“The poor will be most affected in terms of the 2018 budget, which will result in them having to take out [even more] loans to get by.

“This will leave them in a vicious cycle of debt where they will have to incur debt to pay basic living expenses.”