VAT

This is the fourteenth in this weekly blog post of ideas that can help fix South Africa. The general concept of the series is things that can be done quickly, cheaply and will cost very little or (as in this weeks case) save money. I first heard this idea from the Soccer party in 1994 – remember them? This was posted to Facebook on 1 November 2025

 What?

Government must stop using VAT as a way to collect money from everyone and rather take a small percentage of every transaction which comes through the automated banking system (the South African National payment system).

Why?

1)              VAT costs every business a significant amount to prepare returns and pay every two months.

2)              VAT costs government a significant amount to check the returns and prevent fraud.

3)              It will be far easier to audit the banks than every single business.

4)              This tax will be carried by everyone (just as VAT is) and the proportion will be similar to VAT between people of different wealth and spending habits.

5)              Together with the cashless society envisaged in Blog #1, this will be a truly broad-based tax – it will raise money even from the massive informal economy.

6)              The massive VAT frauds we have seen will be at an end.

How?

VAT raises around R400b a year. The payment system processes R576b daily which is over R210t a year, so the rate would only need to be around 0.2% on each transaction. All transactions must be taxed – even those by government as complexity leads to cost and potential avoidance / fraud.

Mechanisms will have to be found to levy the tax on crypto transactions as well to avoid tax evasion. Given the very low percentage, evasion attempts are unlikely to be a major threat.

Why not?

1)              This will cost banks a large amount to institute.

This is unlikely to be a major cost as banks already charge bank charges on all transactions and it is a once off to build the software (in contrast to VAT which is a recurring administrative cost for all businesses every two months).

2)              It will not be a progressive tax. (VAT, by excluding essential foods typically eaten by poor people etc is progressive.)

This is true, but there are better ways to assist poor people with their needs (see Blog # 11on 11 October about BIG). Choosing specific items to zero rate skews consumption habits and reduces the agency of people to decide what they want to eat for themselves and the pressure on producers to compete in the low cost food market. It also increases administrative costs and is open to corruption (producers could lobby for their products to be zero rated).

Referendum

If you would vote that VAT be stopped and replaced by a tax on money passing through the National payment system give this blog post a “like” on Facebook.