The South African Communist Party (SACP) has strongly opposed the government's proposal to implement a 0.5 percentage point increase on the Value-Added Tax (VAT) in 2025 and 2026, and 2026 and 2027 financial years, arguing it will hurt low-income earners.
“VAT increases have a disproportionate impact on workers and the poor, more so on the bottom 40% of society in income terms,” Dr Alex Mashilo, Central Committee Member and SACP national spokesperson said.
Mashilo said the government's initial proposal to increase VAT by 2% was met with widespread public resistance, particularly from the working class, and was opposed.
However, he emphasised that the continued VAT hike, even at a reduced rate, remains unacceptable.
In his budget speech on Wednesday, Finance Minister Enoch Godongwana proposed that the country’s VAT rate will increase by 0.5 percentage points both in 2025 and 2026, which will ultimately bring the VAT rate to 16% in 2026 and 2027.
The SACP, however, argued that VAT is a regressive tax, as it takes a larger percentage of income from low-income earners than from wealthier individuals.
“This discredits the pro-poor claim made by the Minister of Finance Enoch Godongwana when he presented the budget to Parliament in Cape Town,” Mashilo said.
For the poorest South Africans, he said, VAT increases exacerbate existing inequalities by further eroding their meagre purchasing power.
“Essential goods and services become even less affordable, leaving the most vulnerable to suffer the harshest consequences,” Mashilo added.
He pointed out that the poor are spread across the country, including in former Bantustan areas, where there is no single rail network and passenger rail service.
“The poor, who already spend the vast majority of their income on basic goods and services, will bear a disproportionately high burden when VAT rates rise,” Mashilo said.
“On the other hand, wealthier individuals and large corporations, whose spending patterns involve a higher share of non-essential goods, are less affected by the VAT increase, thereby reinforcing social and economic inequalities.”
While he noted the importance of expanding the basket of VAT zero-rated goods, Mashilo argued that it is misleading to suggest the prices of the ingredients and inputs used in producing these zero-rated goods are exempt from VAT.
In contrast, Mashilo pointed to alternative taxation measures that present a more equitable solution.
He cited modelling by the Applied Development Research Solutions, which highlighted that 0.5% wealth tax targeting the richest 20% of society could generate revenue comparable to a 2-percentage point VAT increase.
“Such a tax is progressive, meaning that it requires those who have the most to contribute more, without disproportionately burdening the poor and working class,” he said.
Mashilo also advocated for increasing corporate income tax, introducing a capital transactions tax, and implementing stronger regulation to address illicit financial flows.
“Decisive actions should be taken to tackle corruption, fruitless and wasteful spending,” he said.
“By shifting the tax burden towards those who are better able to bear it - corporations, the wealthy and multinational interests - we can ensure a more equitable distribution of the tax burden and generate sustainable revenue for public goods.”
The SACP called on the government to reconsider its approach to taxation and prioritise fairness and social justice.
“Rather than continuing to increase VAT, which disproportionately harms the poor and working-class South Africans, the government must adopt tax policies that target wealth and corporate profits, while clamping down on illicit financial flows and corruption.
“This would create a more just society and a more sustainable economic future for all South Africans.”
Mashilo slammed the 2025 Budget Speech, saying it reflects a continuation of austerity measures despite the glowing picture that Godongwana painted.
Meanwhile, the National Union of Public Service and Allied Workers (Nupsaw) has also rejected the VAT increase for both 2025 and 2026, calling it a blow and betrayal to millions of the working class and the poor.
“Nupsaw unequivocally rejects this budget and calls on all the organised labour movements to reject this budget that seeks to use the workers of this country to fund the government fiscals,” the union’s president, Titus Daniso said.
Daniso voiced concern that the government does not care about the workers who are already battling with basic necessities such as electricity, food and transport.
“Nupsaw initially warned against the increasing levels of poverty, unemployment and inequalities in the country should the National Treasury continue with its Neo-liberal policies and austerity budget across government departments.
“It is evident, after today, that this is the exact direction this country is headed,” Daniso added.
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