VAT cast in stone as ANC carries vote – against resistance from all opposition parties

Since 2009, Parliament has had the power to reject, amend or adopt Money Bills under the Money Bills Amendment Procedure and Related Matters Act. So it would have been possible for Parliament to give a resounding “No!” to National Treasury, and the government of the ANC, regarding the value-added tax (VAT) increase to 15%, from 14%, from 1 April 2018.

The public outcry over the VAT hike was widespread, vocal and sustained as the poor and workers were particularly hard-hit in the wake of higher transport costs due to the successive petrol price increases, food inflation and other cost pressures.

The official government argument was that the VAT hike was the “least detrimental” and only “certain” revenue generator – R22.9-billion is anticipated in 2019 – to help plug the national revenue hole in a low growth economy. That hole is in no small measure due to the R48.2-billion under-collection by the South African Revenue Service (SARS) – plus the R20-billion that had to be allocated to deal with the VAT refund backlog – the bailout-needy, financially and governance troubled State-owned Entities (SoEs) like SAA, Eskom and the South African Post Office, and billions lost due to government irregular, wasteful and unauthorised expenditure.

As part of the opposition to the unprecedented VAT hike in democratic South Africa, announced in February’s Budget, were scores of submissions to public hearings as early as the first in March. Civil society, academics and economists made it clear that VAT is regressive, disproportionally impacted on the poor, and that there were other more targeted interventions such as raising ad valorum levies on luxury goods, higher corporate taxes and the like.

The window of action on the VAT increase was kept open to a possible review of the actual increase and a possible substantial increase in the number of zero-rated goods, given an independent panel looking at 66 items for exemption.

Ultimately only six were recommended by the panel in August, and in October the Medium-Term Budget Policy Statement (MTBPS) confirmed the zero-rating also of white bread, cake and bread flour, school uniforms, nappies and sanitary products, while also announcing that sanitary pads would be distributed for free in the poorest of schools.

And on Tuesday, the vote in the National Assembly of 183 for and 18 against confirmed the 15% VAT level for at least the next three years, the period Parliament’s Standing Committee on Finance stipulated in its recommendation that the finance ministry and National Treasury review the VAT level in June 2021.

That vote came as the House processed, and approved on the back of ANC numbers, a bundle of three related draft laws, required to give effect to the MTPBS allocation adjustments: the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, the Taxation Laws Amendment Bill and the Tax Administration Laws Amendment Bill.

All but the ANC opposed these Bills, and specifically the VAT hike.

IFP MP Mkhuleko Hlengwa put it bluntly: “Petrol increases, brought to you by the ANC. Vat increase, brought to you by the ANC. eToll, brought to you by the ANC. Bailouts, brought to you by the ANC. Corruption, brought to you by the ANC. And it is the taxpayer who’s affected, to bail out the ANC.”

United Democratic Movement (UDM) Chief Whip Nqabayomzi Kwankwa said, while also listing ANC wastage and SoEs’ mismanagement draining the national coffers: “We reject this thing with the contempt it deserves… The budget is balanced on the backs of the poor.”

EFF MP Mbuyiseni Ndlozi said it was a “sad and shameful day” when it was workers, students and the unemployed who pay for ANC wasting; the EFF “unequivocally rejected” these proposals. Instead, arguing for a sovereign wealth fund and leveraging the R2-trillion of assets of government workers pensions and savings, Ndlozi said: “If we continue to rely on taxation, South Africa will never be in a situation to eradicate poverty.”

Like Hlengwa, African Christian Democratic Party (ACDP) MP Steve Swart picked up on the SARS inefficiencies and turmoil that cost South Africa billions in revenue.

“The majority party has allowed this to happen. Why must the poor pay the price for this? Political responsibility has to be accepted now.”

The DA played the card of protecting the poor, or the reverse play of the ANC claim that it was for the poor.

“The ANC, who claim to represent the poor, will vote yes for a VAT increase which will make life harder for the poor,” said DA MP David Maynier, with his party colleague Alf Lees later adding:

“By increasing VAT to 15%, the ANC is using poor South Africans to bail out the ANC economic mismanagement and disaster.”

It didn’t quite wash with ANC MP Yunus Carrim, and Standing Committee on Finance chairperson, when he took the podium.

“On the eve of an election, which governing party, ruling party, would introduce a VAT increase? It would not be done unless it had to be… National Treasury was aware how widespread the opposition to the VAT increase was.”

The DA as the party of capital and big business had no leg to stand on as they’ve not proposed alternatives – “zilch” was how Carrim put it.

“The ANC in the committee did not embrace this VAT increase enthusiastically... We never had such widespread and intensive opposition,” said Carrim, echoing the committee’s report that “it may well be that it has been one of the most contested tax provisions since 1994…”

Finance Minister Tito Mboweni – he later introduced the controversial polluter pays Carbon Tax Bill that has been postponed at least twice since 2015 – told MPs it was important to balance the debate. Raising revenue was not disconnected to major spending tickets like free higher education.

“When you introduce such a large expenditure item… on the revenue side to find that. If you don’t understand that relationship we are in a difficult position,” said Mboweni, adding that such considerations take place also against a background of slower growth and various international factors.

“The manner in which we handle this matter (VAT) must be reflective of people who understand the complexities of this relationship…”

The finance minister acknowledged “some very profound contributions” from MPs after Carrim earlier acknowledged “some measure of difference” between the ANC in the Executive and the ANC in Parliament.

But in the end it was the government’s view that prevailed, and the 15% VAT was cast in stone. Perhaps that’s because of a catch in the law allowing Parliament to say no, or to change Money Bills: MPs would also have to tell government where to find the money instead. While that’s not impossible – the DA has done some calculations – it would potentially require much political will. And, constitutional oversight mandate notwithstanding, that may yet be a step too far. DM