VAT rate increase coming soon?

[Dave A]

Is it my imagination, or is the general public being prepped for a VAT rate increase sometime soon? There seems to be a lot of "speculative comment" that this might well be the best way to bridge the government's current budget gap between income and expenditure.

Personally I'd prefer to see the government targeting increasing GDP as the solution...

[Dave A]

Pretty good write-up on the Davis Tax Committee's VAT report here.

I still think it's the soft option to solving the problem, though.

[Xplosiv]

I suppose it's too optimistic to think they'll actually cut on unnecessary expenditures?
Like Nkandla, trains that aren't suitable for our tracks, golden handshakes, bonuses where they're not deserved (looking at you, ESKOM), to name just a few.
Cut all the international "fact finding missions" and other ministerial trips that aren't essential. Couple that with aiming to increase GDP and you could probably lower VAT.

[vieome]

Goverment has already increased income tax this year decreasing peoples disposable income, and added to that electricity increases and fuel increases, I think if they increase VAT we are going to be headed to a serious strike season. Though I guess they might wait for Iran oil to bring down the fuel prices before introducing such a measure. I think it would be better to look what the percentage is of goverment wages vs GDP and reduce those expenses first.

[CLIVE-TRIANGLE]

An increase in the rate of VAT versus an increase in the income tax versus increase in indirect taxes. I hear what Dave is saying, but presently I believe that is beyond the scope of their imagination.

So, lets see how we measure up against the rest of the world:
Namibia and New Zealand are 15%
Norway has 15% reduced VAT rate on foodstuffs and beverages, or else it is 25%
United Kingdom 20%
Belgium 21%
Brazil 17% to 19% depending on state.
France 20%
Germany 19%
Ireland (shame) 23%
Italy 22%

It's actually an eye opener to look at these numbers:

http://www.vatlive.com/vat-rates/international-vat-and-gst-rates/

Regarding sin taxes, I for one gave up smoking this year, so they lost an absolute fortune from me! So that won't cut it either.

For me there is an instant attraction towards the simplicity of VAT. I honestly won't mind.

[Chrisjan B]

Only if they lower or scrap other taxes.....

[tec0]

long story short we will see a +1% making it 15% but i suspect due to the massive losses the government has suffered it is possible to see a +2% making it 16% But it will not remain 14% for every long

[tec0]

Regarding sin taxes, I for one gave up smoking this year, so they lost an absolute fortune from me! So that won't cut it either.

For me there is an instant attraction towards the simplicity of VAT. I honestly won't mind.

[Dave A]

It's actually an eye opener to look at these numbers:
http://www.vatlive.com/vat-rates/int...and-gst-rates/

Sure is.

Canada - 5% to 15% depending on state.
India - 12% to 15% depending on state
Indonesia - 10%
Korea - 10%
China - default of 17%, but with massive reductions in a wide variety of sectors and activities (a good example of an incentivised structure?)

[CLIVE-TRIANGLE]

Sure is.

Canada - 5% to 15% depending on state.
India - 12% to 15% depending on state
Indonesia - 10%
Korea - 10%
China - default of 17%, but with massive reductions in a wide variety of sectors and activities (a good example of an incentivised structure?)

I am certainly not arguing with you. I am suggesting that we are faced with a considerable increase in income tax, or a small increase in the VAT rate.

That there are other more equitable strategies is a given; but the acumen and foresight is absent.

[Pap_sak]

It drives me insane that they looking to increase taxes instead of doing more with what they have - and personally, pissed that the media is not taking this line. Beside corruption, the amount of money that is just wasted is crazy. Vat will hurt the poor - so think they will tread carefully.

[wynn]

I have always believed that VAT could go as high as 20% even 25% but they must scrap personal tax.

Essential foodstuffs such as Samp, Mieliemeal, Fresh Veg, Unprocessed Meat etc. be zero taxed and certain luxury items such as ciggies and booze be extra taxed.

That way if a poor guy buys booze he pays but if he buys bread for his family he does not.

It will also make the collection a lot easier because there are a lot less businesses than individual tax payers, the extra SARS employees can become VAT police and inspect registered businesss right down to the Spaza shop.
Unregistered businesses just pay as individuals.

This will bring the informal market into the tax paying net, people such as 'Shebeen Queens' or Taxi Operators' who mostly collect and keep cash, if they don't register as VAT Vendors they pay heavily, so it will pay them to register so that they can claim input.

[BusFact]

I have still not been able to find solid reasoning as to why a flat rate turnover/cash flow tax would not work. By this I don't mean the turnover tax we have for small companies. Instead I mean that every time money comes into any bank account a tax of around 2% is levied pretty much like a bank charge. Every time something gets paid out another say 2% is levied again.

So, you receive a salary of R10'000, but only R9'800 arrives in your account. The R200 is automatically rerouted to SARS by your bank. If you are like the vast majority, you immediately spend everything, which means you pay bills for R9'604 with R196 (2% of R9800) going off to SARS. The same thing happens with company accounts. This replaces VAT, PAYE, CGT and Income Tax . No tax returns required.

Advantages to SARS:
+ Only have to monitor a dozen or so banks instead instead of thousands of companies and millions of individuals. Bye bye easyfile and efiling.
+ Continual inflow of taxes every day.
+ No bad debts, as the tax gets paid in real time.
+ The simplicity makes it much harder to avoid paying tax as it does not rely on the tax payer to file returns and the accuracy there of.
+ The simplicity brings just about everyone into the tax net. Far more difficult to hide by hiding profits.
+ The more someone earns the more tax they pay.
+ All companies pay tax, so the profitable ones don't have to help finance the unprofitable ones.
+ Encourage profitable businesses, rather than penalising them.
+ People are less resistant to paying tax when its not in their face. Eg Etolls vs Petrol tax (one you get a nasty bill for every month to remind you, the other gets mixed up in the actual product you put in your car). PAYE vs VAT (The one stares at you on your payslip, the other is a single line entry near the end of a till slip which no one ever reads).
+ Internationals can't siphon off local profits to tax havens as any revenue generated in SA gets taxed here.
+ Some revenue can be generated from SA citizens paying for foreign products and services (Amazon, Apple, Ebay, and other online providers).
+ Could possible attract investment in SA by foreign companies with high margin products (think tech). A tax based on turnover would most likely be more beneficial to them than one based on profits.

Advantages to "the people":
+ No complicated tax returns
+ No having to pay an accountant to help you with your tax return, which you are ultimately responsible for anyway.
+ No tax shocks or penalties.
+ The appearance of a lower tax burden because of the lower apparent amount and because no action is required.
+ A sense of fairness because everyone pays, and those with more pay more, but only proportionally so.
+ There is added incentive for the Government to increase economic activity, rather than just trying to milk a select few.

Common issues raised:
- But high volume, low margin businesses will end up with much higher taxes! Answer: Indeed they will. The effect will be a 4% increase in say the price of bread, assuming the company never made any profits before. That does not seem unreasonable.
- But every one will just use cash! Answer: Cash is already being discouraged and can easily be discouraged further. It will continue to have a role for smaller transactions, but with a 4% charge, there really isn't much incentive to go through the hassle of protecting cash.
- But my company only has 3% margins as it is, the 4% tax will make me unprofitable! Answer: No it won't. Your margins will have to increase to 7% as will your competitors.
- But how can you expect the poor to pay the same rate as the rich! Answer: True they do pay the same rate, but obviously a smaller amount. However this can actually be a positive for the Government and their socialist tendencies. This tax system should generate more revenue than the existing one. Which will help allow them to provide free services to the poor a bit better than they do now. Rebates can also be provided to companies who provide staples (bread, milk, etc) for example.
- The Government loses some ability to manipulate markets. Answer: Not really. They can still tax certain industries like petrol, alcohol and cigarettes as they do already. Duties on imports can remain. So a minority of industries can remain a bit complicated, but the vast majority can adopt a simple system.

Effectively all companies will pay around 4% of their turnover and individuals 4% of their salary. I've used this number here as a bit of a guess. Trying to get actual bank activity numbers is really difficult. When I first did my calculations a while back, it seemed reasonable. In addition I believe VAT is the biggest tax generator at the moment, but 14% is not what the Government receives. Its only 14% of the difference between the company input and output - speaking loosely of course.

I'd really like some discussion from you critical lot, assuming of course that you managed to read the waffle above.

[Dave A]

Let's start with the obvious - Would 2% per transaction do the job of replacing the existing main tax channels?

[BusFact]

Valid point Dave. Unfortunately getting the data I'm looking for is not simple.

Currently the SARS budget is around 1 trillion. GDP is around 4 trillion.

However some initial layman's investigation seems to indicate that GDP is an inadequate measure. It seems to only feature net exports which means the total for exports plus imports would be much higher. It also seems to only calculate the value of final products produced, but there could be many exchanges before the product gets to that stage. Of course I could have this wrong. How much higher is the nation's internal cash flow than GDP - not sure.

I tried the sales of the top 100 JSE companies and came up just short of the 4 trillion mark again. I excluded the big plc companies as I think most of their sales occurs out of SA. Again , not much meaning as I have no way of measuring what all the unlisted companies generate in terms of revenue. Government expenditure still has to be added, as well as personal revenue and expenditure.

Short answer is that its a bit of a guess, and unless someone knows the figure for all bank account activity its going to remain a guess.

I found this website which calls the type of tax TEAL http://ddforum.co.za/faqs. They reckon the rate will be closer to 1%.

On the other hand if its 10%, do most of the benefits still not remain?