SACBC Justice and Peace Commission welcomes the opportunity to provide comments to the Davis Tax Committee (DTC) on its interim report to the Minister of Finance on VAT restructuring.

The Justice and Peace Commission is an advocacy body, established by the Southern African Catholic Bishops’ Conference (SACBC), to tackle the structural roots of poverty and inequality.

In the preparation of this submission, the SACBC consulted Mr Mike Holland of PriceMetrics and Prof Jannie Rossouw of the School of Economic and Business Sciences at the University of the Witwatersrand.


We recommend that the Minister of Finance and the National Treasury should defer the increase of the standard rate for VAT (currently 14%) until such a time that the government has developed a comprehensive social security system.

  1. The interim report affirms that any increase in the standard rate for VAT will have an inflationary effect which will create a heavy burden on the poor and the middle class. It is beyond the scope of this submission to calculate the extent of this inflationary effect, but it is important to note that this effect will (statistically) be visible only in the first year. More seriously, however, is the fact that the price increases emanating from any increase in the VAT rate will be sustained for as long as VAT is retained at such higher level. This has a more serious impact on consumers than only the higher rate of inflation owing to the increase in the VAT rate.
  1. We also maintain the view that additional social transfers could be introduced to compensate the effects of increased food prices on the poor in the event of a VAT increase and that such an increase should ideally precede the VAT increase.   However, although existing social transfers such as grants may protect to some extent those poor people who receive them, there are other categories of the indigent and the working poor that are excluded from the social assistance net and an increase in VAT will have a serious effect on these communities.


We recommend that the zero rate basket be reviewed periodically and the expansion of the number of zero rated items be considered:  

  1. In a country where a high percentage of the working poor and unemployed are food insecure, we view the zero rating of basic food items as a vital instrument to protect them from excessive escalation of food costs.
  1. The current zero rating applies to 19 basic food items, to petrol, diesel, paraffin, and municipal rates. It has been argued in some academic circles that the current zero rate basket is not optimally targeted towards the poor. Some of the food items in the zero basket are not items typically consumed by the poor. [1]
  1. In the light of this targeting deficiency, we recommend that the National Treasury establishes a mechanism for periodic review of zero rate basket to ensure that these food items correspond with the spending patterns of the poor and accurately reflect their spending habits, i.e. to cover the food that are actually consumed by the poor.
  1. We are also of the view that the practice of regular review of the zero rate basket should of necessity open the door for a possible periodic changes in the composition and number of items to feature in the zero rate basket. In the light of the periodic review mechanism, we therefore submit that the extension of the zero rating be considered in tandem with the changes in the consumption patterns of the poor.
  1. We recognise that, when considered in absolute rand terms, the extension of the zero rating would confer more benefits on the rich than the poor. The interim report has emphasised this point. We however stand in solidarity with COSATU in arguing for the need to consider the proportionate benefit of VAT rating on the poor, and not only the absolute benefit. In this regard, COSATU has argued: “The aim of zero rating is to counter some of the VAT regressivity, and this is achieved if one considers proportional rather than absolute consumption: even allowing that some of the benefit is passed to vendors, we would argue that the proportionate benefit of these measures is larger for poorer households than for rich households, and thus that equity is enhanced. In other words, there is an equity gain from a 7% saving on items that make up 30% of a poor household budget compared to a 7% saving on items that make up 5% of a rich household budget, even if (unsurprisingly) the Rand savings accrue far more to the rich than the poor” (COSATU submission).[2]
  1. It has also been argued that the intended social goals of zero rating of food items can be achieved more efficiently through the spending side of the budget, especially by targeted and direct social transfers. We are as yet to see social transfer interventions that comprehensively and effectively address the food insecurity problem and ensure adequate nutrition for the poor in South Africa. Until we see this realised through the spending side of the budget, we shall continue to stand in solidarity with the working poor and the unemployed and argue for extensive zero rating.


We recommend the consideration of higher income tax on high income earners, rather than the imposition of a higher VAT rate:  

  1. We propose that additional income tax brackets be introduced to increase revenue for the government, rather than the introduction of a higher VAT rate.[3] We understand that such higher taxes can have detrimental employment effects but, for purposes of this presentation, we assume no elasticity in employment arising from tax payers moving to higher income tax rates.
  1. Currently the maximum marginal tax rate of 41% is payable on taxable income exceeding R701 301. An increase of tax rates above this income level will increase revenue for the government. The 2014-Tax Statistics[4] tables (the most recent available) show the following:
  • Some 87 000 tax payers earned above R1 million per annum in 2013. If the growth rate in this group since 2010 is used to project the number of tax payers in this group in 2015, their number in 2015 should be some 120 000; and
  • Some 15 000 tax payers earned above R2 million per annum in 2013. If the growth rate in this group since 2010 is used to project the number of tax payers in this group in 2015, their number in 2015 should be some 34 000.


  1. In this calculation a marginal tax rate of 45% is proposed and used for income between R1 million and R2 million (an increase of 4 percentage points) and 50% (an increase of 9 percentage points) is used for income above R2 million. Moreover, it is assumed that the tax payers earning above R2 million per annum earn on average each R3 million per annum.
  2. Our calculations show that:
  • A tax rate of 45% tax (rather than 41%) on 120 000 tax payers earning between R1 million and R2 million will yield an additional R4,8 billion ( 4% x R1 million x 120 000);
  • A tax rate of 45% tax on that part of the income of 34 000 tax payers earning above R2 million iro earnings between R1 million and R2 million will yield an additional R1,36 billion (4% x R1 million x 34 000); and
  • A tax rate of 50% tax on the income of 34 000 tax payers above R2 million (assume average of R3 million per annum) will yield an additional R3,06 billion (9% x R1 million x 34 000).
  1. This provides an additional income of R9,22 billion for the government, which is approximately equal to an increase of 0,5 percentage point in the VAT rate. The acceptance of this approach, rather than an increase in the VAT rate, will impact less on the poor than a VAT increase and is therefore preferred by the SACBC Justice and Peace Commission.

The SACBC Justice and Peace Commission will welcome an opportunity to make an oral submission to engage members of the Davis Tax Committee on its comments and proposals contained in this submission.


[1] Jansen, A. and Calitz, E. 2014. Zero Rating of Value-Added Tax: Report to the Davis Tax

Committee. University of Stellenbosch.

[2] SACTWU And COSATU Submission to the Davis Committee, 7 February 2014, (Available at   Accessed on 23 September 2015)

[3] In this analysis we use as a basic point of departure the research of Rossouw, J, Joubert, F and Breytenbach, A (2014) Suid-Afrika se fiskale afgrond: ’n Blik op die aanwending van owerheidshulpbronne (South Africa’s fiscal cliff: A reflection on the appropriation of government resources). Tydskrif vir Geesteswetenskappe. 54(1).

[4] SARS (2014) Tax Statistics. Online at