By Daanyaal Matthews
Finance Minister Enoch Godongwana’s decision to increase value-added tax (VAT) by 0.5% this year, with a potential additional increase next year, has drawn sharp criticism—even from some ANC partners within the Government of National Unity (GNU).
Defending the move, Godongwana argued that raising corporate or personal income taxes would be counterproductive to efforts aimed at reducing unemployment. He cautioned that such tax hikes could discourage investment and hinder business growth.
“Corporate tax collections have declined over the last few years, signaling falling profits in an already struggling trading environment affected by logistics constraints and rising electricity costs. Additionally, South Africa’s corporate tax rate is already higher than that of most peer countries.
Meanwhile, increasing personal income tax would reduce taxpayers’ incentives to work and save,” explained Godongwana
ECONOMIC STAGNATION: VAT SEEN AS ‘VIABLE OPTION’
Many critics argue that the real issue is the stagnant economy, a challenge Minister Godongwana acknowledged has persisted for over a decade. He maintains that this economic stagnation has left VAT increases as one of the few available options for revenue generation.
EXPERT VIEW: ‘AVERAGE WORKERS BEAR THE BURDEN’
Abdul Aziz Davids, head of research at Camissa Asset Management and portfolio manager of Camissa Islamic Funds, believes the VAT increase places an unfair burden on individual taxpayers, while government continues to neglect opportunities to expand the tax base.
“Unfortunately, due to the makeup of our economy and tax structure, the average taxpayer carries the bulk of the tax revenue burden.
Instead of increasing VAT, the government should focus on broadening the tax base. If more people contributed to the system, we could potentially unlock R200 billion in additional tax revenue,” detailed Davids.
