DA and EFF unite in court to challenge VAT increase and protect the poor

IN WHAT must be the strangest political marriage since the dawn of democracy, a court case instigated by both the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF) to prevent a VAT increase started today.

The court action, in the Western Cape High Court, has been filed against the Minister of Finance and other entities, including the South African Revenue Services. 

While judgment is likely to be reserved, the outcome of the matter will affect everyone, given that inflation will be adversely affected. Investec chief economist, Annabel Bishop, has already worked out that a 0.5 percentage point increase in VAT will add 0.25 basis points to inflation for each of the two years proposed in the National Budget tabled in March. 

The DA, this morning during a press conference, argued that the Minister was imposing the National Budget containing the VAT increase without agreement between all parties. It wants the fiscal framework containing the VAT increase overturned. 

In what George Michalakis, the DA’s Chief Whip in the National Assembly, said is a first for South Africa’s history since free and fair elections in 1994, a win would mean that the budgetary process would need to start over. It's challenge, he said, is good for democracy. 

If VAT is increased, everyone will suffer, “and the poor will suffer first,” Michalakis said. He added that there would be an adverse effect on the economy, which only grew 0.6% last year, and the government should rather stop wasting money. 

The combined application by the DA and EFF, a copy of which IOL has, argued that the framework upon which the budget was based should be suspended. Ahead of the tabling of the second attempt to pass the National Budget on March 12, political parties met to come to some sort of agreement, which resulted in the development of a fiscal framework. 

In their filing, the DA and EFF argued that the adoption of this fiscal framework was “unlawful”. In response, Minister of Finance Enoch Godongwana stated that the application “lacks merit” and that he had the legal power to implement a change to the VAT Act.

However, Godongwana’s response seemed to indicate that no law had been changed and any amendment to VAT was temporary. He argued that the fiscal framework enabled him to implement “temporary and conditional authority to adjust the rate for 12 months”.

“Parliament may or may not adopt the proposed legislative amendment. The structure of the provision allows me to act, and for Parliament to decide later whether to confirm or reject the rate change. This is the design of the law,” Godongwana’s response read.

Members of Parliament voted in terms of this framework on March 12, and it was passed by a slim majority of 192 for versus 182 against. 

This fiscal framework has confused the VAT increase as ActionSA has claimed to have halted the framework, and thus the Budget’s, implementation with National Treasury having 30 days from April 1 to come up with alternative proposals.

Initially, the February budget proposed an increase from 15% to 17%.