Neelam Rahim | neelam@radioislam.co.za
3-minute read
11 March 2025 | 17:30 CAT

South Africans brace for potential VAT hikes as economists warn of increased financial strain on low-income households. Experts call for alternative revenue solutions to protect the most vulnerable.

With the South African budget announcement looming, experts warn that proposed increases to Value-Added Tax (VAT) could disproportionately impact low-income households and worsen inequality. Liso Mdutyana, a researcher at the Institute for Economic Justice, has raised concerns about the government’s approach, emphasizing the need for alternative revenue solutions that do not burden the most vulnerable citizens.

The proposed VAT increase, according to Mdutyana, fails to consider the broader economic landscape and potential alternatives for revenue generation. “A proper national treasury would have assessed all available options to raise funds before opting for a VAT hike,” he argues. While increasing tax revenue is crucial, he warns that the effects on struggling households must not be ignored.

A key concern is the diminishing effectiveness of zero-rated essential goods. “The government has previously attempted to mitigate VAT increases by exempting certain staple goods,” Mdutyana explains. “However, we are running out of items to zero-rate, and there’s no clear evidence that these exemptions significantly reduce the financial strain on low-income consumers.”

African women, in particular, stand to be among the hardest hit. “Disproportionately heading households and engaging in subsistence agriculture, African women already face higher unemployment rates and economic marginalization,” Mdutyana points out. “A VAT hike directly reduces their purchasing power, exacerbating existing inequalities.”

There are also fears that, should the VAT increase be scrapped, the government may resort to cutting social spending instead. Mdutyana warns against such measures, citing their devastating impact on essential services. “Budget cuts have already led to a decline in public service quality. Clinics, hospitals, and schools are overburdened, with fewer resources to serve growing populations,” he notes. “Further reductions will only deepen the crisis.”

Instead of increasing VAT or cutting social services, Mdutyana advocates for revisiting corporate tax rates and addressing tax loopholes. “Corporate tax rates have declined from nearly 50% in the 1990s to 27% today, without evidence of increased investment,” he states. “Tackling tax havens, strengthening SARS, and reducing unnecessary tax breaks for high-income individuals could generate substantial revenue.”

As the nation awaits the budget announcement, experts like Mdutyana urge the government to explore progressive tax policies that protect South Africa’s most vulnerable while ensuring sustainable economic growth.

Listen to Annisa Essack’s and Liso Mdutyana’s full interview on Your World Today.