The South African Federation of Trade Unions (SAFTU) unequivocally rejects the National Treasury’s proposal to increase the Value-Added Tax (VAT) by two percentage points, raising it to 17%. This proposal, which has triggered an intra-Cabinet dispute and led to the unprecedented postponement of the national budget, is a direct assault on the working class and the poor. It will deepen existing inequalities and worsen economic hardships.
SAFTU, alongside many other organisations that rallied on February 18 and marched against Finance Minister Enoch Godongwana on February 19, demands the immediate scrapping of the VAT hike. Instead, we call for increased taxation on the wealthy and corporations and stricter exchange controls to curb capital flight and tax evasion by the unpatriotic bourgeoisie.
Impact on the Working Class and Poor
Treasury claims the VAT increase is necessary to “balance fiscal sustainability with delivering services.” It considered various options, including raising personal income tax, corporate tax, or VAT, ultimately choosing VAT because it “represents the most efficient and broad-based approach.” Corporate tax was rejected because it would “discourage investment and job creation.”
This reasoning is flawed. Corporate tax rates have been drastically reduced since the end of apartheid to appease private capital. Yet, private investment has stagnated, economic growth has been sluggish, and unemployment remains at crisis levels. Treasury is making its class allegiance clear by opting for a VAT increase over corporate tax hikes.
While Treasury proposes expanding the basket of zero-rated VAT goods, such as tinned vegetables and certain meat products, this will not sufficiently mitigate the burden on the working class. VAT is factored into the entire production chain, and businesses routinely pass on increased costs to consumers. As a result, the working class will disproportionately bear the brunt of this increase.
Inflationary Pressure and Economic Consequences
A VAT increase could trigger inflationary pressures, further eroding household incomes. Since the end of the COVID-19 lockdowns, the South African Reserve Bank (SARB) has aggressively raised interest rates, transferring wealth from workers to bankers under the guise of inflation control. If VAT increases fuel further inflation, SARB may respond with additional interest rate hikes, compounding financial distress for workers and small businesses.
SAFTU strongly rejects this regressive tax increase, as it disproportionately impacts low-income households who spend a greater share of their income on consumables. According to the Pietermaritzburg Economic Justice and Dignity Group, such an increase would significantly raise the cost of essential goods, exacerbating food insecurity and poverty.
Key Consequences of the VAT Increase:
- Higher Costs for Basic Goods – Everyday essentials, including food, transport, and household necessities, will become more expensive.
- Erosion of Disposable Income – Low-income households will struggle to afford necessities as purchasing power declines.
- Worsening Inequality – VAT is a regressive tax, disproportionately affecting the poor while the wealthy remain largely unaffected.
- Threat to Informal Economy Workers – Increased costs will squeeze the margins of small traders and street vendors, worsening their financial instability.
- Reduced Access to Healthcare and Education—Higher living costs will force poor households to reduce their spending on transport, school supplies, and medical expenses.
- Increased Household Debt – More families will be forced into debt without wage increases to match rising costs.
- Heightened Food Insecurity – Shrinking household budgets will lead to poorer diets, increasing malnutrition and hunger.
- Greater Social Unrest – Rising living costs could fuel strikes, protests, and widespread discontent against the government’s neoliberal policies.
Alternative Revenue Measures
Treasury argues that the 2% VAT increase will generate R58 billion in additional revenue for 2025/26. However, this claim is both misguided and unnecessary. SARS Commissioner Edward Kieswetter has stated that South Africa could collect over R460 billion in additional revenue if tax administration were more efficient. Factoring in R300 billion in outstanding tax returns, potential revenue could reach R700 billion—far exceeding what the VAT increase aims to collect.
Moreover, the 1% VAT increase in 2018 failed to generate the expected revenue, raising doubts about the Treasury’s projections. South Africa has reached a point where additional tax hikes harm the economy without yielding substantial revenue.
SAFTU proposes the following alternative revenue measures:
- Modernise SARS for Efficient Revenue Collection – Rather than burdening the poor, SARS must be reformed to improve tax collection efficiency.
- Reintroduce and Strengthen Exchange Controls – Prevent capital flight and ensure financial resources remain within the country by reversing policies that allow South African firms to externalise profits.
- Combat Illicit Financial Flows – South Africa loses billions annually through trade mis-invoicing and abusive transfer pricing. Stricter regulations and enforcement could recover substantial revenue for public services.
- Address Corruption in Public Procurement – Treasury estimates that 35-40% of the procurement budget is lost to fraud. Implementing stringent anti-corruption measures could save the country billions.
- Implement Wealth and Solidarity Taxes – Corporate taxes have dropped from 51.5% in 1992 to 27% (or 15% in Special Economic Zones), yet investment remains weak.
- Take meaningful steps to stop tax dodging schemes exposed by the Tax Commission. The Dennis Davis Tax Commission exposed widespread practises that cost society at least R50 billion annually.
- Revitalise Industrial Capacity —Manufacturing’s contribution to the GDP has declined from 22% to 12%. Targeted investment in local industries can create jobs and stimulate economic growth.
- Increase Taxes on Luxury Goods – Higher import duties and VAT on luxury goods can generate additional revenue without harming low-income people.
Conclusion
The proposed VAT increase is a short-sighted, regressive policy that burdens society’s most vulnerable members. SAFTU demands that the government explore progressive taxation and anti-corruption measures instead of shifting the fiscal burden onto the working class.
SAFTU Call to Action
Yesterday’s march in Cape Town on February 19, 2025, was an excellent and auspicious start to creating a broad front of unity for the working class, including union federations, the X of the Excluded coalition, religious formations, farm workers, and progressive organisations like Equal Education and the Treatment Action Campaign. However, we still lacked critical mass due to our failure to secure Section 77 worker protection.
We must maintain the momentum of mass mobilisation and build a national anti-austerity front—a People’s Budget Front or People Before Profits Front, led by the working class. If we can raise the necessary funds, an emergency conference should be convened within the next two weeks to strengthen this front and develop a programme of action against austerity and VAT increases.
We propose convening the federation’s general secretaries and the task team immediately. The working class steering committee must also meet soon to advance this struggle.
We call on all South Africans to reject this unjust tax hike and fight for an economic policy that prioritises the interests of the many over the profits of the elite.
