Increase in VAT could adversely affect the poor, MPs warned

MPS heard yesterday that consumption taxes such as VAT could affect the poor despite the measures aimed to protect low-income households by introducing zero-rated goods.

During a presentation to the joint finance committee, parliamentary budget office’s Dumisani Jantjies said there had been a lot of discussion on whether the reduction in severity of the tax through zero-rated goods was effective.

“Is it helping? There is a strong suggestion it is not effective,” Jantjies said.

He made these comments in a discussion on possible economic policy directions that government could take and how to address critical issues the budget would be facing.

Finance Minister Pravin Gordhan was expected to raise R28 billion in tax revenue. There has been speculation on the taxes to be affected, with VAT being mentioned.

Jantjies said VAT was seen as an effective way to raise revenue, and in this year’s budget up to R10bn in revenue could be raised.

He said the zero-rated goods were benefiting not just the low-income households, but all households.

National Freedom Party’s Munzoor Shaik-Emam said an increase in VAT would have a catastrophic effect on the poor. “Already we have high inequality. This is going to burden the poorest of the poor,” Shaik-Emam said. He added other options of revenue generation should be looked at.

UDM’s Nqabayomzi Kwankwa said a VAT increase would put a further burden on the poor.

Kwankwa said people in rural areas often did not know zero-rated goods were exempted from VAT.