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Cyril on collision course over VAT

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Cosatu and the SACP slammed Finance Minister Malusi Gigaba for raising Value Added Tax (VAT) and income tax

SHAKE ON IT: President Cyril Ramaphosa shakes hands with Minister of Finance Malusi Gigaba after Gigaba delivered his maiden budget speech yesterday. Picture: Phando Jikelo / ana

PRESIDENT CYRIL Ramaphosa’s administration is on a collision course with the country’s major unions and the ANC’s ally, the SACP.

Yesterday Cosatu and the SACP slammed Finance Minister Malusi Gigaba for raising Value Added Tax (VAT) and income tax.

In his maiden Budget Speech, Gigaba conceded that funding free higher education, which former President Jacob Zuma announced in December, and the R48.2 billion shortfall in the budget, would need additional revenue from the fiscus.

The scramble for cash to fund free higher education – which received R57 billion for this year – and the dip in tax revenue also forced government to cut expenditure in some of the critical areas such as infrastructure grants for schools.

Cosatu and the SACP has described the tax increase by the government as a “betrayal” of the working class and the poor, who would feel the pinch from April.

The federation’s spokesperson Sizwe Pamla stopped short of accusing president Cyril Ramaphosa of misleading the nation when he delivered his much celebrated first State of the Nation address on Friday last week.

“We enthusiastically welcomed the vision and plan outlined in the State of the Nation address by President Ramaphosa last week, but it’s obvious that he sold us a dummy and the whole vision was nothing but a false prospectus.

“While the president was emphatic on the need for government to kick-start the economy, create jobs to absorb the millions of unemployed and to tackle the scourge of corruption and state capture, the budget is deafeningly silent on how that is going to be achieved,” Pamla said.

“Government’s response to its budget problems is to take money from workers through VAT and below inflation income tax bracket hikes. This will hurt workers and their families by taking money from their pockets and making basic food and other living expenses more expensive.”

In terms of the Budget Review document, large provincial conditional grants such as the schools infrastructure backlog grant, the education infrastructure grant, the human settlements development grant and the provincial roads maintenance grants have been reduced.

“Similar cuts were made to local government grants, including the municipal infrastructure grant, the integrated national electrification programme grant, the urban settlement grants and the public transport network grants,” the document states.

“These cuts will delay the completion of a number of infrastructure projects,” Pamla said.

A treasury official said they were targeting government institutions that were failing to spend by reducing or cutting grants.

SACP national spokesperson, Alex Mashilo, accused the government of forcing the working class and the poor to foot the bill for fee free higher education without consulting them.

“There was no clarity given when the announcement was made for fee-free higher education, and the nation was plunged into confusion and uncertainty. We were looking for that clarity today, and it is very clear that the money will come from the workers and the poor who are the majority of our population,” Mashilo said.

He said that while the party fully supported free higher education, it rejected the decision to increase VAT as the government was reproducing inequalities.

“We obviously denounce the increase of VAT as the SACP.”

The increase in VAT and personal income tax is meant to raise R36 billion.

Gigaba said increasing VAT and income tax was unavoidable.

“We have increased personal income tax significantly in recent years, particularly in the higher income bands, and our corporate tax is high by international standards.

“We have not adjusted VAT since 1993, and it is low compared to some of our peers,” he said.

The country’s economic outlook has improved over the past few months due to growth in agriculture and recovery in investor and business confidence, Gigaba pointed out.

He said government was anticipating a growth of 1.5 percent in 2018, rising to 2.1 percent in 2020, significantly below the five percent envisaged in the National Development Plan.

But Saftu general secretary Zwelinzima Vavi said that the federation could go to the streets next month as the decision to increase VAT was an assault on the working class.

“Workers have been battered by this budget speech and they have been taken for fools by being told that this is done for their benefit.

“I hope that our members will give us a mandate to take this to the streets,” Vavi said.

Katrien van Aswegen, an associate at Bowmans’ Tax Practice, said the country’s lower income households would bear a “significant burden” for addressing the shortfall in the revenue.

“South African income tax is an example of a progressive tax, because higher income earners pay income tax at a higher rate. VAT is generally cited as a perfect example of a regressive tax, because all people pay the same rate, even though not everyone is equally able to afford,” she said.

On the argument that SA had a low VAT compared to other countries, Van Aswegen said considering that the country’s budget was already burdened by social grants, “an increase of a tax affecting exactly that portion of society that is in dire need of government assistance cannot possibly be seen as a sustainable solution to a revenue shortfall”.