Davis Tax Committee: Cosatu ‘wrong on tax’
20 August 2015
Posted by: Author: Fiona Forde
Author: Fiona Forde (Financial Mail)
Cosatu looked a little silly this week when the Davis Tax Committee called it out on the contentious issue of Vat hikes.
The ANC-aligned labour federation said last week it was planning "the mother of all stayaways” on October 7 to rally against an array of issues, including "proposed Vat increases”.
However, the Davis committee responded on Monday, saying it hadn’t recommended an increase in Vat at all. In fact, it recommended the opposite — advising government not to hike Vat as it would become a burden to the poor. It was "simply inaccurate” to state otherwise, it said.
In the interim report on Vat released last month, the team of experts said that while a Vat increase might be less distortionary than an increase in direct taxes, it "would have a greater negative impact on inequality than an increase in personal income tax or corporate income tax”.
Not only that, the report also warns government that should it decide to ignore the advice and increase Vat, "it will be important for the fiscal authorities to think carefully about compensatory mechanisms for the poor”, who would be hit hardest.
"A range of measures should be considered, such as increases in social grants or the strengthening of the school nutrition programme,” it said.
Any hike in Vat without "a significant measure of recycling of revenue in favour of poorer people is inherently regressive”, the team insisted.
The report also tested various propositions with one key question in mind: if government wants to raise significant sums, what is the most economically efficient way to do so? On the Vat side, and based on a hypothetical hike of 2%-3%, the increase was found to be highly retrogressive and unjustifiable.
However, Cosatu told the Financial Mail a day later that "the Davis committee doesn’t know what it is talking about”.
"Read their report. They are calling for Vat to be increased,” said acting spokesman Norman Mampane. "That is one of the reasons we approached Nedlac for permission for a stayaway on October 7, which is World Day for Decent Work. An increase in Vat will only hurt the poor. We are against that.” So is the committee, it would seem, but Cosatu is refusing to listen.
Mampane refused to entertain further questions on the matter, telling the Financial Mail to do its homework and "read the [interim] report” and for the committee to do likewise.
In reply, Judge Dennis Davis says Cosatu "clearly hasn’t read it, so it is futile trying to debate with people who haven’t even read our work”.
Davis says Cosatu should "at least read it” before criticising it.
"I invite them to show us where in the report we say we are raising tax. And for the record, we have asked Cosatu to come along and talk to us about the broader framework of tax, not only Vat. But they have not done so.”
The public has until the end of September to comment on the interim report before a final version is prepared for finance minister Nhlanhla Nene.
This article first appeared on financialmail.co.za.