Have your say on the proposed VAT hike

The South African government has proposed increasing the Value-Added Tax (VAT) rate by 2 percentage points—from 15% to 17%—in the upcoming 2025/2026 budget. This proposal aims to generate additional revenue to address fiscal challenges, including funding public sector wage increases and supporting social grants. However, such an increase in VAT is regressive, disproportionately impacting low-income households and exacerbating existing inequalities. We urge the government to explore alternative, more equitable revenue-generating measures that do not place an undue burden on the most vulnerable members of our society. 

Key Concerns with the Proposed VAT Increase

1.    Regressive Impact on Low-Income Households

VAT is a consumption tax applied uniformly to most goods and services, meaning low-income households spend a larger portion of their income on VAT compared to wealthier households. This exacerbates existing economic disparities. 

2.    Increased Cost of Living

A higher VAT rate would lead to increased prices for goods and services, further straining households already struggling with the rising cost of living.

 
3.    Negative Economic Consequences

The proposed VAT hike could dampen consumer spending, leading to reduced demand for goods and services, which may slow economic growth and result in job losses. 

4.    Insufficient Revenue Generation

Past VAT increases have not yielded the anticipated revenue due to lower-than-expected economic growth and changes in consumer spending behaviour. 

5.    Alternative Revenue Sources Overlooked

There are more progressive revenue-generating options available, such as improving tax collection efficiency, combating illicit financial flows, and implementing wealth taxes, which have not been adequately considered.