Social activists warn against VAT hike, say it will undermine education & healthcare gains

Social activists warn against VAT hike, say it will undermine education & healthcare gains! As South Africa continues to grapple with economic pressures and social inequality, human rights organizations have sounded the alarm on the potential impact of a value-added tax (VAT) increase on the country’s most vulnerable citizens.

During public hearings on the Division of Revenue Bill held on Friday, Section27, a human rights law centre, together with several other non-governmental organizations, voiced their deep concerns over the possible implications of raising VAT as part of the government’s strategy to increase revenue. These hearings form part of the parliamentary budgetary process and are crucial for finalizing how funds are allocated across national, provincial, and local spheres of government.

A Blow to Basic Services

Section27’s budget analyst, Matshidiso Lencoasa, emphasized that a rise in VAT could have serious unintended consequences, particularly for essential public services such as education and healthcare.

“We are of the view that the rise in costs that are forced by the VAT increase will erode any increased allocation towards schools and health facilities,” Lencoasa said.

VAT hike

She explained that while the government may plan to channel more funding into basic services, these efforts would be undermined by the inflationary effect of a VAT hike, which would increase the cost of living and reduce the purchasing power of ordinary South Africans—especially those already living in poverty.

Disproportionate Impact on the Poor

VAT is a consumption-based tax, meaning that everyone pays the same rate on taxable goods and services, regardless of income. While it is often seen as an efficient method for revenue collection, it is widely regarded as regressive—hitting lower-income households the hardest, since they spend a larger portion of their income on consumption.

Lencoasa noted that impoverished communities will bear the brunt of this tax increase.

“It will place a disproportionate burden on impoverished communities,” she warned. “The cost of basic goods and services will rise, and this will cancel out any gains made through increased budget allocations to education and health.”

Government Under Pressure to Increase Revenue

South Africa’s National Treasury is under immense pressure to increase revenue in order to address ballooning debt, maintain public infrastructure, and meet growing social demands. In its 2024 Budget Speech, the Treasury hinted at potential tax increases in the coming years to close the fiscal gap, but no formal announcement has been made regarding a VAT hike.

Nonetheless, the idea of increasing VAT remains on the table and has already sparked widespread debate among economists, politicians, and civil society organisations.

The Budget vs. Real Impact

The Division of Revenue Bill, currently under review in Parliament, outlines how national funds will be distributed to provincial and municipal governments. Activists argue that without considering the real-world impact of policies like VAT hikes, budget planning becomes symbolic rather than transformative.

A key concern raised during the hearings is the disconnect between increased allocations and actual outcomes. For example, if more funds are allocated to the education sector but those funds are immediately negated by higher operating costs due to increased VAT, the net result is negligible.

Calls for Progressive Tax Reform

Civil society organizations are now calling on the government to explore more progressive forms of taxation, such as wealth taxes or corporate taxes on high-income earners, rather than relying on regressive consumption-based taxes.

They argue that sustainable development and the protection of social rights—like the right to education and healthcare—must remain at the heart of budget planning.

“We need to design fiscal policies that do not penalise the poor in the name of raising revenue,” Lencoasa concluded.

Next Steps

Parliament is expected to debate and possibly amend the Division of Revenue Bill in the coming weeks. Public submissions such as those from Section27 are essential in shaping a budget that reflects both the economic and social needs of South Africans.

As the national conversation around tax and public services continues, one thing is clear: any change in VAT policy will be closely scrutinised by both the public and social justice advocates alike.