The South African Federation of Trade Unions (SAFTU) rejects Finance Minister Enoch Godongwana’s recent attempt to portray VAT (Value-Added Tax) as a progressive tax. The Minister claims that because high-income earners pay the majority of VAT in absolute Rand terms, VAT is not regressive. This statement is technically narrow and deeply misleading.
WHAT MAKES A TAX “REGRESSIVE”?
To understand what’s at stake, we must distinguish between different ways of evaluating a tax:
• Way 1a: Absolute VAT Contribution to State Revenues – Yes, the wealthiest earners pay more VAT in Rand terms because they spend more than do poor and working people. But this does not make the tax progressive.
• Way 1b: Share of Income Spent on VAT – Thanks to zero-rated basic goods, poor households may spend slightly less than the richest decile in direct VAT (around 9% vs 11–12%). But this still means that the poor pay a substantial portion of their income to VAT, and even this narrow measure does not prove progressivity.
• Way 2: What Increasing VAT Does to the Tax Mix – This is where the issue becomes crystal clear. When the government increases VAT instead of taxing profits, capital, or wealth, it shifts the burden of the tax system further onto the working class and the poor. In this broader sense, VAT is the most regressive option available. It deepens inequality, especially in a country where poverty and unemployment are already staggering.
THE EVIDENCE IS OVERWHELMING: INDIRECT TAXES HIT THE POOR HARDEST
The Minister’s argument ignores decades of research. A widely cited chart from National Treasury shows that the poorest 10% of households spend more than 17% of their disposable income on VAT, excise tax, and fuel levies combined, compared to 16% for the richest decile. This clearly demonstrates that indirect taxes fall more heavily on the poor relative to income.
Even zero-rating basic goods only reduces the regressive impact — it doesn’t eliminate it.
PBO AND FFC CONFIRM SAFTU’S WARNING
Parliament’s own fiscal advisors — the Parliamentary Budget Office (PBO) and the Financial and Fiscal Commission (FFC) — have now issued strong warnings against any increase in VAT:
• The PBO explicitly described VAT as regressive in the context of the ongoing cost-of-living crisis.
• It revealed that the bottom 40% of the population contributes around 30% of total VAT revenue, and that an increase would disproportionately hurt the poor.
• The FFC reported that the 2018 VAT hike (from 14% to 15%) did not result in a proportional increase in revenue, making VAT a weak instrument for closing fiscal gaps.
• Both institutions emphasized that further VAT increases would exacerbate inequality, fail to generate significant new revenue, and carry serious social risks.
The South African economy has produced extreme inequality ever since Portuguese slavers arrived in the 1480s, Dutch settler-colonialism began in the 1650s, and British mineral looting started in the 1860s. When our hard-fought freedom finally arrived in 1994, it came with a terrible price: due to neo-liberal policies recommended by financiers – including the International Monetary Fund, which catalysed the imposition of the VAT in 1991 when 3.5 million workers went on strike against it – South Africa’s unemployment, poverty rates and inequality all worsened dramatically. The Gini coefficient measuring income inequality rose from 0.59 to 0.69, and before state welfare transfers and other social spending are included, to 0.78, the highest level ever recorded.
The most unequal country in the world in 1994 was Brazil, but its public policies – including doubling of the minimum wage in the early 2000s – allowed a steady reduction of the Gini coefficient, while neoliberal finance ministers pushed South Africa’s ever higher.
THERE ARE ALTERNATIVES — THE GOVERNMENT JUST REFUSES TO USE THEM
The PBO presented clear alternatives to the Parliamentary committees:
• A 0.5–1% wealth tax could have raised R38.4 billion in 2023 alone (and even though apartheid was declared a crime against humanity, there has been no wealth tax imposed on those who profited from the crime).
• Scrapping the corporate-friendly Employment Tax Incentive could yield R6–7 billion annually.
• Cracking down on illicit financial flows could recover at least R6.5 billion with limited enforcement.
We would add that the corporate tax rate was more than 50% from the mid-1980s to the early 1990s, peaking at 52.5% in 1992. Their reduction to 27% today was meant to spur greater corporate investment. That didn’t happen.
The facts are undeniable: The state chooses to protect the wealthy and corporations, and to shift the cost of crisis onto the poor.
SAFTU’S DEMANDS
We say: enough is enough. The crisis must not be paid for by the working class.
• No VAT increases – not now, not ever.
• Tax the rich: introduce a wealth tax, strengthen capital gains and inheritance tax, and tax idle land.
• Reverse corporate tax cuts and stop subsidizing profits through incentives like the ETI.
• End corruption and waste in SOEs instead of raiding workers’ pockets.
• Fund services through solidarity, not austerity.
• Impose tighter exchange controls so the notorious offshoring of wealth and profits is finally brought to an end, so that South African can exit the Financial Action Task Force greylist caused in 2023 by slothful law enforcement and deregulatory exchange control policies of Treasury and Reserve Bank.
Minister Godongwana is not just wrong on the facts — he is wrong on the politics. South Africa’s tax system must serve the people, not protect elite privilege.
We will not allow the poor to be scapegoated for a crisis they did not create. We will oppose regressive taxation in the streets, in Parliament, and across every platform where workers fight for justice.
A Statement was issued on behalf of SAFTU by General Secretary Zwelinzima Vavi.
For more details, contact the National Spokesperson at:
Newton Masuku
066 168 2157
Newtonm@saftu.org.za
