Treasury defends VAT hike proposal, rejects idea of wealth tax, increasing corporate income tax

CAPE TOWN - National Treasury has rejected the idea of imposing a wealth tax on the rich and also hiking corporate income tax.

It said that this could deter future tax compliance and hamper investment, making South Africa less competitive. 

National Treasury has defended its value-added tax (VAT) hike proposal in Parliament and said that the last increase in 2018 raised substantial revenue.

National Treasury and the South African Revenue Service (SARS) briefed a joint meeting of Parliament’s finance committees on submissions received on the fiscal framework and revenue proposals.

Organisations and labour unions on Tuesday made several submissions during public hearings on the budget.

They all rejected the VAT increase, while calling for alternatives like a wealth tax and higher corporate tax.

But Treasury’s head of tax, Christopher Axelson, said that an increase in corporate tax would be ill advised.

"Corporate tax increases will reduce investment. It will deter the growth in the economy and makes South Africa uncompetitive. We already have a high contribution, the rate is much higher than the averages in other countries."

Axelson said that the 2018 VAT hike did raise substantial revenue, contrary to claims that it made no difference.

"At face value, at high level, you would say it didn’t raise revenue, but if you break it down according to different constituents, the domestic VAT, import VAT, it did raise money," said Axelson.

Axelson said if there was no additional payout in VAT refunds in 2018, the revenue gained would have been around R23 billion.