In a statement amid growing public discontent, the South African Communist Party (SACP) has firmly rejected the government’s proposed Value-Added Tax (VAT) increase and is calling for a comprehensive overhaul of the nation’s tax system. At a recent Political Bureau meeting, the SACP expressed its full backing for SARS commissioner Edward Kieswetter’s proposal for the National Treasury to invest in South Africa’s tax collection agency, aiming to recover an estimated R800 billion in uncollected revenue—rather than resorting to regressive tax hikes. This bold stance comes against a backdrop of a delayed Budget Speech and widespread criticism of recent tax policies, which many argue disproportionately burden the working class while favoring corporate interests.

A Nation at a Fiscal Crossroads

South Africa’s economy is currently grappling with several formidable challenges—stagnant growth, high unemployment, and an uneven distribution of wealth that has only deepened over decades. The current administration’s attempt to address these fiscal shortfalls by proposing a VAT increase has sparked intense debate. The VAT, which is levied on the consumption of goods and services, is widely regarded as regressive because it takes a larger percentage of income from low-income earners compared to wealthier citizens. In light of these dynamics, the SACP’s outright rejection of the VAT hike is not just a rejection of one tax measure—it is a call for a paradigm shift in how fiscal policy is structured in South Africa.

The SACP’s position is rooted in the belief that the government should focus on enhancing the efficiency and capacity of SARS (South African Revenue Service) to collect taxes that are already owed. According to SARS commissioner Edward Kieswetter, enhancing tax compliance and broadening the tax base by recovering uncollected revenue—estimated at a staggering R800 billion—could help fill the fiscal gap without burdening ordinary citizens with additional consumption taxes. The commissioner’s analysis also highlighted that the 2018 VAT increase failed to deliver significant revenue gains, suggesting that structural improvements in tax administration might yield better results than merely raising rates.

Reassessing Past Policies: Lessons from the 2018 VAT Increase

Critics of the VAT hike point to the 2018 increase as a case study in policy missteps. Despite the expectation that higher VAT rates would boost government revenue, the measure fell short of its ambitious targets. Instead of generating the necessary fiscal relief, the increase exacerbated financial pressures on households and stifled consumer spending. The SACP has been quick to argue that rather than imposing additional costs on consumers, the government should direct its efforts towards reforms that address systemic issues in the tax collection process.

The SACP emphasizes that the potential to recover billions in unpaid taxes exists if SARS is properly equipped and empowered. According to recent estimates provided by the commission, uncollected taxes amount to approximately R450 billion identified through theoretical modeling, with an additional R300 billion stemming from outstanding tax returns. These figures underscore a critical point: the fiscal challenges South Africa faces could be mitigated not by raising taxes on consumption, but by plugging the leaks in the existing tax system.

Alternatives to VAT Hikes: A Progressive Tax Reform Agenda

In its call for a tax system overhaul, the SACP has proposed a range of alternative measures that target the root causes of fiscal inefficiencies and economic inequality. Key proposals include:

• Stricter Capital Regulation:
  The SACP argues that tightening capital controls and regulations can help curb illicit financial flows. By clamping down on tax evasion and money laundering, the government could prevent the loss of valuable revenue that currently escapes the tax net.
• Combatting Illicit Financial Flows:
  Alongside enhanced capital regulation, there is a pressing need to address the sophisticated methods employed by corporations and high-net-worth individuals to hide profits offshore. Implementing stringent measures to track and tax these funds would not only boost revenue but also restore fairness to the tax system.
• Addressing Tax Avoidance by Multinationals:
  Multinational corporations and offshore-listed firms have long been able to exploit loopholes in the tax code, paying far less than their fair share. The SACP is calling for reforms that ensure these entities contribute appropriately to the national fiscus. Proposed measures include implementing a capital transactions tax and a wealth tax, which would help rebalance the fiscal contributions of large corporations relative to their economic footprint.
• Reversing Corporate Income Tax Cuts:
  The SACP has pointed to the drastic reductions in corporate income tax (CIT) rates since 1994—a policy shift that has led to a decline in corporate contributions to national revenue. A recent KPMG report highlights that the CIT rate has plummeted from approximately 50% in the early 1990s to 27% in 2022, with the most recent cut from 28% to 27% aimed at enhancing competitiveness and attracting investment. The party insists that this trend should be reversed, arguing that restoring a higher corporate tax rate is essential to provide much-needed resources for public services and social programs.

The Historical Context of Taxation in South Africa

The evolution of South Africa’s tax policy is deeply intertwined with its broader socio-economic transformation. Since the end of apartheid, the country has undergone significant reforms aimed at fostering economic growth and attracting foreign investment. However, these reforms have also been accompanied by policies that favor deregulation and neoliberal market practices, often at the expense of social equity.

During the 1990s and early 2000s, the government pursued a series of structural reforms that reduced the tax burden on corporations and high-income earners. While these policies were credited with spurring economic growth and integration into the global economy, critics argue that they also contributed to widening inequality and left the fiscal system vulnerable to inefficiencies. The SACP’s current call for a tax system overhaul is, in many ways, a response to the long-term consequences of these neoliberal policies. By advocating for progressive taxation measures, the party aims to ensure that the fiscal system not only generates sufficient revenue but also promotes social justice.

The Impact on Public Services and Social Equity

At the heart of the SACP’s opposition to the VAT hike is the belief that regressive taxes disproportionately harm the working class and marginalized communities. VAT, by its very nature, is a tax on consumption—a cost that falls hardest on those who spend a larger share of their income on basic goods and services. In contrast, wealthier individuals and corporations have the means to invest, save, and even avoid the full brunt of such taxes through various loopholes and exemptions.

The SACP contends that rather than burdening consumers, fiscal policy should focus on funding and protecting essential public services. These services include health care, education, and social welfare programs, which are vital for ensuring a basic standard of living and promoting long-term social stability. The party’s vision for a reformed tax system includes not only measures to enhance revenue collection but also a commitment to a national budget that prioritizes the implementation of the National Health Insurance (NHI) and the eventual transition to a universal basic income grant for all South Africans.

In the wake of proposed VAT increases, there is widespread concern that cuts to pro-poor programs will follow. The SACP warns that increasing VAT could lead to further defunding of key social services, thereby exacerbating poverty and inequality. By advocating for alternative revenue-raising measures, the party seeks to protect these critical services while ensuring that the tax burden is distributed more equitably.

Strengthening State-Owned Enterprises and Overcoming Neoliberal Legacies

Beyond taxation, the SACP’s broader fiscal critique extends to the state of South Africa’s public enterprises. The party has long argued that the neoliberal policies implemented over the past few decades have weakened the governance and management of state-owned enterprises (SOEs), leading to inefficiencies and a lack of accountability. The delayed funding and chronic underinvestment in these institutions have further compromised their ability to deliver essential services to the public.

In its recent statement, the SACP called for an urgent recapitalization and revitalization of SOEs. The party asserts that the harm caused by decades of state capture and mismanagement must be reversed if these institutions are to fulfill their crucial role in supporting the nation’s development. Importantly, the SACP emphasizes that such funding should not be viewed as “bailouts” but as necessary investments in the country’s long-term economic and social well-being.

Reforming SOEs and ensuring they operate transparently and efficiently is seen as a key component of the broader fiscal overhaul. Strengthening these institutions would not only help bridge the gap in public service delivery but also restore public confidence in the state’s ability to manage its resources effectively.

Political Dynamics and Public Reaction

The proposed VAT hike and the accompanying debates over tax policy have ignited a firestorm of political and public reactions in South Africa. The SACP’s rejection of the VAT increase reflects broader discontent among many South Africans who feel that the government’s fiscal policies disproportionately favor the wealthy while burdening ordinary citizens. Public outrage over regressive taxation measures has already contributed to significant delays in the Budget Speech, underscoring the depth of the controversy.

At the recent Political Bureau meeting, the SACP not only condemned the VAT increase but also called for an urgent consultative process within the broader Alliance. The party’s Secretariat has been tasked with taking immediate leadership in implementing a series of reforms aimed at overhauling the tax system. This move signals a desire for a more inclusive dialogue on fiscal policy—one that prioritizes the needs of the working class and marginalized communities over the interests of large corporations and wealthy elites.

Political analysts note that this development is indicative of a broader shift in South African politics. As economic inequality continues to rise and public frustration with neoliberal policies grows, parties like the SACP are gaining traction by advocating for more progressive and equitable fiscal reforms. The debate over the VAT hike is thus not just a technical discussion about tax rates; it is a reflection of deeper societal tensions and a call for transformative change in how economic policy is formulated and implemented.

Expert Perspectives on the Proposed Reforms

Several economists and policy experts have weighed in on the SACP’s proposals, highlighting both the potential benefits and challenges of the suggested reforms. Many agree that enhancing the capacity of SARS to recover uncollected revenue is a sensible approach. Improved tax administration and enforcement could significantly narrow the fiscal gap without resorting to measures that hurt consumer spending.

Moreover, the call for stricter capital regulation and measures to tackle illicit financial flows has found favor among experts who argue that these issues have long been neglected in South Africa’s tax system. Addressing tax avoidance by multinational corporations and high-net-worth individuals is seen as essential for ensuring that the country’s wealth is taxed fairly.

However, some analysts caution that reversing corporate income tax cuts may have unintended consequences for investment and economic growth. South Africa’s lower CIT rates have been credited with attracting foreign investment and supporting the country’s competitiveness on the global stage. Any policy shift in this area would need to strike a delicate balance between raising revenue and maintaining an attractive business environment.

Despite these challenges, the SACP’s proposals have sparked a vital conversation about the need for a more progressive and equitable tax system—one that aligns fiscal policy with broader social objectives such as reducing inequality and funding essential public services.

The Road Ahead: Implementing Comprehensive Tax Reforms

The SACP’s rejection of the VAT hike and its call for a tax system overhaul represent a bold challenge to the status quo. Implementing these reforms will require not only political will but also a concerted effort to build consensus among various stakeholders, including government officials, private sector representatives, and civil society groups.

Key steps in the process are likely to include:

• A National Dialogue on Tax Policy:
  Creating a platform for open and inclusive discussions about the future of South Africa’s tax system is essential. Such a dialogue should involve experts, policymakers, and representatives of affected communities to ensure that all voices are heard.
• Strengthening Tax Administration:
  Investing in SARS to improve its capacity to collect revenue is a critical priority. This includes modernizing its systems, enhancing enforcement mechanisms, and closing loopholes that enable tax evasion.
• Legislative Reforms:
  To implement measures such as stricter capital regulation, a wealth tax, and revisions to corporate income tax rates, comprehensive legislative reforms will be required. This will involve amending existing tax laws and potentially introducing new regulations that reflect the evolving economic landscape.
• Coordination with International Partners:
  Given the global nature of many of the issues at hand—such as illicit financial flows and multinational tax avoidance—South Africa will need to work closely with international organizations and other countries to develop coordinated strategies.
• Monitoring and Accountability:
  Any reform process must be accompanied by robust monitoring and accountability mechanisms to ensure that changes are implemented effectively and that the benefits of a fairer tax system are widely shared.

Conclusion: A Call for a Fairer, More Sustainable Fiscal Future

The SACP’s unequivocal rejection of a VAT hike, coupled with its call for a sweeping overhaul of South Africa’s tax system, underscores a broader demand for fiscal policies that prioritize social equity and economic justice. In a country where the legacy of past policies continues to shape the present, there is an urgent need to reimagine a tax system that not only meets revenue targets but also addresses the deep-seated inequalities that have long plagued South African society.

By advocating for alternatives such as enhancing SARS’s capacity to recover uncollected revenue, tightening capital regulation, and implementing progressive taxes on wealth and corporate transactions, the SACP is charting a course toward a more inclusive and sustainable fiscal future. The proposals put forward are not merely technical fixes; they represent a fundamental rethinking of how the nation’s resources should be mobilized and distributed to support public services, drive economic development, and promote social justice.

As South Africa stands at a critical juncture, the debates unfolding in Parliament and on the streets reflect the aspirations of a society demanding change. The path ahead is fraught with challenges—from balancing the need to attract investment with the imperative of fair taxation, to ensuring that reform measures are both effective and equitable. Yet, the SACP’s call for a tax system overhaul has ignited a conversation that is long overdue—a conversation about how best to build a society where the burdens of taxation do not fall disproportionately on the vulnerable, and where every citizen can share in the country’s prosperity.

In the coming months and years, the success of any fiscal reform will be measured not only in terms of increased revenue collection but also in the tangible improvements in the lives of South Africans. With a national dialogue on tax policy, stronger tax administration, and a commitment to transparency and accountability, there is hope that the country can pave the way for a future defined by fairness, resilience, and shared progress.

The rejection of a VAT hike by the SACP is a powerful reminder that fiscal policy is not just about numbers and percentages—it is about people’s lives, opportunities, and the promise of a more just society. As South Africa grapples with its economic challenges, the demand for a tax system that supports both growth and equity has never been more urgent. The coming period will be critical as stakeholders work together to forge a fiscal framework that meets the needs of today while laying the groundwork for a brighter, more inclusive tomorrow.

Ultimately, the SACP’s stance serves as a clarion call to policymakers: the time for regressive tax hikes is over, and the future lies in reforming the tax system to serve all South Africans fairly. Through bold reforms, innovative policies, and a steadfast commitment to social justice, South Africa can chart a new course—one where the tax burden is shared equitably, public services are robustly funded, and the nation’s vast potential is unleashed for the benefit of every citizen.

As the debate continues and the process of fiscal reform unfolds, all eyes will be on the government and its partners to demonstrate that they can rise to the challenge and deliver a tax system worthy of the country’s promise. The stakes are high, but the vision is clear: a South Africa where economic growth is inclusive, fiscal policies are fair, and every citizen has the opportunity to thrive.

In this critical moment, the SACP’s call for change is not just a political statement—it is a mandate for a better future. A future where the burdens of yesterday are transformed into the foundations of tomorrow’s prosperity, and where the principles of equity and justice guide every decision in the halls of power.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

26th February, 2025