Contents VALUE ADDED TAX SOUTH AFRICA: /23/2011

Transcription

1 VALUE ADDED TAX SOUTH AFRICA: STANDING COMMITTEE ON FINANCE Presenter: Cecil Morden Chief Director, Tax Policy, National Treasury 23 March 2011 Contents 1. Introduction 2. History of VAT in South Africa 3. VAT revenue performance 4. Concessions and exclusions 5. Requests for VAT concessions 6. Exemptions and apportionment problems 7. Tax burden / regressivity 8. Multiple VAT rates 9. VAT in South Africa, Cnossen (Katz Commission) 11. Taxing consumption, WB, Prof. Richard Bird 12. Consumption taxes, OCED 13. Mirrlees Review, UK 14. IES, Stats SA 2005/ Concluding remarks 2 1

2 Introduction (1) Following the Margo Commission (1986) Government released a White Paper in 1988 indicating its intention to replace the then one-stage General Sales Tax (GST) with a Value-Added Tax system (VAT). Concerns raised with respect to GST - evasion, the extent of the erosion of the sales tax base due to general exemption of food items and the exclusion of most services. Businesses could partially escaped cascading effect of GST by means of GST credit certificates - certificates were abused leading to concerns about tax evasion. Registration certificates used to buy goods GST free if bought for resale or used as intermediate inputs for further processing. However, capital goods and other intermediary inputs (e.g. advertising) formed part of the GST base. 3 Introduction (2) Value Added Tax was introduced on 30 September It is a destination VAT, invoice credit method, with full credits for capital goods. VAT is payable when invoice is issued payment basis for municipalities and sole traders with an annual turnover below R2.5 million per annum Value-Added Tax Committee (VATCOM) recommended a broad tax base with minimal exclusions 4 2

3 History of sales tax rates in South Africa General Sales Tax (GST) 3 July 1978: 4% 1 March 1982: 5% 1 September 1982: 6% 1 February 1984: 7% 1 July 1984: 10% 25 March 1985: 12% Value Added Tax 30 September 1991: 10% 7 April 1993: 14% 5 VAT history (1) When the VAT Act, No 89 of 1991, was promulgated on 12 June 1991 no provisions were made to exclude (zero-rate) any goods or services. On 17 July 1991 the zero-rating of brown bread and maize meal were included. On 29 September 1991 (the Sunday before the scheduled introduction of VAT on Monday 30 September 1991), following extended public protest, eight additional basic food items were added to the zero-rated list. 6 3

4 VAT history (2) At the beginning of 1993 further public protest resulted in the zero rating of an additional nine basic food items with effect from 7 April The VAT rate was increased from 10 per cent to 14 per cent on the same day. Pressures for a higher VAT rate on luxury goods were allayed, to an extent, by the extension of ad valorem excise duties on luxury goods to items such as air conditioners, cell phones, video cameras, jetskis and domestic dishwashers. Motor vehicles were later added to the list by way of a progressive ad valorem duty formula that excluded the cheapest vehicles from this impost. 7 Revenue performance VAT is the second most important source of revenue for the South African fiscus, after PIT, and that the South African VAT system appears to be, after New Zealand, one of the better performing VAT systems. 8 4

5 PIT, CIT & VAT as % of Total Tax Revenue % of Total Tax Revenue Individuals GST / VAT Companies 1983/ % 19.7% 25.9% 1984/ % 23.8% 23.0% 1985/ % 26.1% 25.2% 1989/ % 25.6% 21.1% 1990/ % 25.3% 20.5% 1991/ % 24.1% 18.0% 1992/ % 21.1% 15.8% 1993/ % 26.3% 11.9% 1994/ % 26.1% 12.1% 1995/ % 26.0% 12.4% 1996/ % 24.5% 12.9% 1999/ % 24.4% 10.6% 2000/ % 25.3% 13.7% 2001/ % 24.6% 17.1% 2002/ % 25.3% 20.1% 2003/ % 26.9% 20.3% 2004/ % 28.2% 20.3% 2005/ % 27.8% 20.9% 2006/ % 27.9% 24.7% 2007/ % 26.9% 25.0% 2008/ % 25.4% 27.2% 2009/ % 25.4% 23.3% 9 TAX/GDP ratios Tax Revenue as a % of GDP Individuals GST / VAT Companies Total Tax / GDP Budget Rev / GDP 1983/84 5.9% 4.0% 5.3% 19.5% 20.3% 1984/85 6.8% 5.2% 5.0% 21.0% 21.8% 1985/86 6.9% 6.2% 6.0% 23.1% 23.7% 1989/90 7.6% 6.4% 5.3% 24.7% 25.0% 1990/91 8.1% 6.1% 4.9% 24.0% 24.1% 1991/92 8.7% 5.5% 4.1% 22.9% 22.7% 1992/93 8.9% 4.6% 3.4% 21.9% 21.8% 1993/94 8.5% 5.7% 2.6% 21.9% 21.8% 1994/95 9.0% 5.9% 2.7% 22.8% 22.6% 1995/96 9.1% 5.8% 2.8% 22.5% 22.4% 1996/97 9.4% 5.6% 3.0% 23.1% 23.0% 1999/ % 5.8% 2.5% 24.0% 23.7% 2000/01 9.1% 5.7% 3.1% 23.1% 22.6% 2001/02 8.6% 5.8% 4.0% 24.0% 23.7% 2002/03 7.9% 5.9% 4.7% 23.5% 23.2% 2003/04 7.6% 6.3% 4.7% 23.5% 23.2% 2004/05 7.8% 6.9% 5.0% 24.9% 24.4% 2005/06 7.9% 7.2% 5.4% 26.3% 26.0% 2006/07 7.7% 7.3% 6.5% 27.0% 26.2% 2007/08 8.1% 7.2% 6.7% 27.5% 26.9% 2008/09 8.4% 6.7% 7.1% 26.9% 26.2% 2009/10 8.4% 6.0% 5.5% 24.3% 23.6% 10 5

6 TAX/GDP ratios TAX / GDP ratio: Three main taxes 11.0% 10.0% 9.0% Individuals VAT Companies 8.0% 7.0% 6.0% % 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% YEAR 11 VAT revenue trend VAT Revenue: % of Tax Revenue (lhs) and of GDP (rhs) % 29.0% 28.0% 27.0% 26.0% 25.0% 24.0% 23.0% 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% % of Tax Revenue % of GDP 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% YEAR 12 6

7 Household consumption & VAT as a % of GDP 65.0% 8.0% 64.0% 7.0% 63.0% 62.0% 61.0% 60.0% FHCE/GDP VAT/GDP 6.0% 5.0% 4.0% 3.0% 2.0% 59.0% 1.0% 58.0% % 13 VAT performance GST / VAT: "Efficiency" = ( VAT Revenue /GDP ) / VAT Rate RATIO YEAR 14 7

8 VAT Revenue VAT in South Africa % of Tax Revenue % of GDP "Efficiency" "Rate" 1989/ % 6.4% % 1990/ % 6.1% % 1991/ % 5.5% % 1992/ % 4.6% % 1993/ % 5.7% % 1994/ % 5.9% % 1995/ % 5.8% % 1996/ % 5.6% % 1999/ % 5.8% % 2000/ % 5.7% % 2001/ % 5.8% % 2002/ % 5.9% % 2003/ % 6.3% % 2004/ % 6.9% % 2005/ % 7.2% % 2006/ % 7.3% % 2007/ % 7.2% % 2008/ % 6.7% % 2009/ % 6.0% % VAT = 30 September 1991: Fiscal Year 1 April to 31 March 15 OECD: 2001 VAT / GDP % Standard Rate % "Efficiency " Australia % Austria % Canada % Denmark % Finland % Germany % Greece % Hungary % Ireland % Japan % Korea % Netherlands % New Zealand % Poland % Slovak Republic % Spain % Sweden % Switzerland % Turkey % United Kingdom % 16 8

9 VAT concessions As a consumption destination based tax exports are zero-rated and imports are subject to VAT Most countries exclude non-fee based financial services from the VAT base due to practical difficulties Many analysts have demonstrated that in absolute monetary terms the middle and higher income earners benefit more from the zero-rating than the poor. However, public opinion is very strongly in favour of maintaining the zero rating of basic foodstuffs. An effective VAT system, not unduly compromised by wellintended but doubtful concessions, is essential in generating the necessary tax revenues to fund Government's expenditure programmes, including initiatives to help the poor. 17 Zero-rated and exempt supplies The following goods and services are zero-rated: Exports 19 basic food items Illuminating paraffin Goods which are subject to the fuel levy (petrol and diesel) International transport services Farming inputs Sales of going concerns, and Certain grants by government. Goods and services exempted from VAT are: Non-fee related financial services Educational services provided by an approved educational institution Residential rental accommodation, and Public road and rail transport. 18 9

10 Basic foodstuffs zero-rated in South Africa Brown bread. Maize meal. Samp. Mealie rice. Dried mealies. Dried beans. Lentils. Pilchards/sardinella in tins. Milk powder. Dairy powder blend. Rice. Vegetables. Fruit. Vegetable oil. Milk. Cultured milk. Brown wheaten meal. Eggs. Edible legumes and pulses of leguminous plants. 19 Request for VAT concessions During the last few years, especially since the zero-rating of illuminating paraffin in 2001, the Minister of Finance has received several requests from the public, certain interest groups and by way of questions in Parliament to abolish VAT on the following goods and services: medicines; medical services; books; electricity; water; red meat; mageu (a maize based soft drink, largely consumed by the poor); security related expenses by private individuals; canned vegetables; and 450 gram household candles. The South African Candle Manufacturers argued that the zero-rating of illuminating paraffin has impacted negatively on the sales of household candles. And most recently toll fees 20 10

11 Exemptions and apportionment problems It has been argued that exemption is also an elegant way of relieving certain businesses from the administrative burden of complying with the VAT system (e.g. public transport, taxis). In this regard, the threshold below which certain businesses do not have to register for VAT is also an indirect form of exemption. However, whilst VAT exemption might result in administrative relief for businesses that make only exempt supplies, it actually results in major administrative complexities for those businesses that make both exempt supplies and taxable supplies (standard- and /or zero rated). 21 Tax and regressivity (1) The debate on the effectiveness of attempts to help the needy via the zero rating persists. Many analysts have demonstrated that in absolute monetary terms the middle and higher income earners benefit more from the zero-rating than the poor. The zero-rating of illuminating paraffin (IP) in South Africa is probably a case in point of well intended but misguided zerorating. It would appear that most of the benefits of the VAT zero-rating of IP was captured by retailers in the form of higher profit margins. Providing relief in the form of reduced rates, zero-rating (or exemption) for merit goods might even worsen the regressivity of a VAT system because these goods (books, medical services, etc) are mostly bought (in the private sector) by individuals in the middle and higher income groups

12 VAT and regressivity (2) "In the final analysis it is not whether the VAT itself is regressive or not, but whether the entire tax and expenditure system is achieving the pattern of household income net of taxes and gross of transfers and government expenditures that society desires. The case for VAT does not fall on its regressiveness. The case for VAT is that it is an efficient way of collecting a large and buoyant revenue for government; other parts of the budget should take care of progressiveness, and the VAT should be kept as simple and efficient as it is intended to be - for that is its justification" (Tait: 1988). "The justification for VAT is that it is a neutral, efficient, buoyant, revenue-raising instrument. It is not designed to correct income or wealth inequalities. Other aspects of the tax system, such as the progressive income tax and more specifically the expenditure side of the government budget should take care of progressiveness, thus leaving the VAT system as simple and effective as possible" (Adams: 1994). 23 Multiple VAT rates Most VAT multiple rates are as a result of political concessions rather than sound socio-economic and tax administrative considerations. The Margo Commission (1987) recommended a single rate VAT structure and inter alia quoted the Irish Commission in this regard. The Irish Commission on Taxation concluded in its Third Report of 1984, that an attempt to make VAT progressive by using a multi-rate system is not recommended. Instead, it recommended a single-rate broad-based system on all purchases. The Commission stated: "We are satisfied that to charge different rates of indirect tax on different goods and services is a most wasteful and ineffective way of trying to redistribute income. That task is best achieved by welldesigned public expenditure programmes, supplemented at the top of the range of income and wealth by a progressive expenditure (income) tax. Measures on the indirect tax side complicate the system, give increased scope for evasion and accomplish little in the way of redistribution." 24 12

13 Administration & Compliance costs Differential VAT rates (including concessions in the form of zerorating, reduced rates and /or exemptions) results in increased administration and compliances costs. There is a (+) correlation between the compliance costs of VAT and the number VAT rates. (Compliance of VAT in Sweden, Report 2006:3B) Global VAT experience has shown that, regardless of the effort which goes into defining the scope of a concession, borderline cases will subsequently result in uncertainties for both the Revenue Authority, as well as evasion opportunities for unscrupulous vendors (p.167) 25 VAT in South Africa: What Kind of Rate Structure? Cnossen, VAT Monitor, 2004 (Katz Commission,1994) providing relief to the poor through exemptions and VAT zerorating is likely to be both unsound tax policy and ineffective social policy the disadvantages of multiple VAT rates outweigh the possible redistributive gains available from this option VAT impact studies in other countries also confirm specific conclusions of the Katz Commission. In Ireland, for example, it was found that the poor spend relatively more of their income on food than the rich, (however) in absolute amounts the rich spend twice as much (on food) as the poor. Consequently, Ireland s zero-rating of food gives twice as much tax relief to high-income groups than to low-income groups - an odd way of alleviating the plight of the poor

14 VAT in South Africa: What Kind of Rate Structure? Cnossen, VAT Monitor, 2004 (Katz Commission,1994) An important administrative advantage of a VAT is that the whole production-distribution process is involved in collecting the tax from the consumer. Basically, zero-rating (other than for exports, for which it is imperative) nullifies this advantage and turns it into a disadvantage. It involves the tax office in an expensive collection and refund process that does not yield revenue. Refund returns must be monitored with particular care even though no revenue is realized. 27 Taxing Consumption, World Bank, PREM notes June Richard Bird.. The best sales tax (VAT) with respect to both efficiency and administration is undoubtedly one with a single uniform rate applied to all taxable transactions... Higher rates on luxury goods are an ineffective means of increasing the progessivity of the fiscal system, and, most importantly, lower tax rates on necessities are generally poorly targeted and ineffective. The rich may spend relatively less of their income on basic food, but they are likely tp spend absolutely more and hence receive more benefit from such concessions

15 Consumption Taxes: the Way of the Future? OECD, Policy Brief, October 2007 many countries apply a reduced rate of VAT to certain necessities in order to reduce the tax burden on the poor. However, this is a relatively ineffective way of dealing with the problem as the rich typically consume more of the necessities than the poor. An argument can also be made in the case of using VAT to reduce employers social security contributions, thus reducing the cost of exporting and importing-competing firms. Germany increased its VAT rate at the beginning of 2007, partly to finance a cut in social security contributions. 29 Mirrlees Review of the UK tax system, Institute for Fiscal Studies, Nov 2010 Value added tax (VAT) is an important and, on the whole, well-designed tax. But in the UK, zero rates are applied to an unusually wide range of goods and services. There may be convincing arguments to justify a few of these departures from uniformity, but not most. We favour a broadening of the VAT base in the UK, applying the standard rate to a wider range of goods. The central component of both reform packages we look at is a broadening of the VAT base such that goods and services now subject to zero and reduced rates of VAT principally food, passenger transport, books and other reading matter, prescriptions drugs, children s clothing, and domestic fuel and power would be taxed at the standard rate after the reform. Why should the tax system favour people who like reading magazines more than listening to music, or who buy their children more expensive clothes and less expensive toys than other? The UK recently increased the standard VAT rate from 17.5% to 20% 30 15

16 IES, Stats SA, 2005/06 (% expenditure by expenditure group) Expenditure deciles Total R million Lower Upper Average household size 2,6 3,4 4,0 4,3 4,6 4,8 4,7 4,5 3,9 3,5 3,8 Main expenditure group % Food and non-alcoholic beverages 36.1% 35.7% 34.1% 32.6% 30.8% 28.1% 24.5% 19.6% 13.1% 7.0% 14.4% Alcoholic beverages and tobacco 3.4% 2.5% 2.0% 2.1% 2.0% 1.9% 2.0% 1.5% 1.3% 0.6% 1.2% Clothing and footwear 9.4% 9.3% 8.9% 9.3% 8.7% 8.4% 7.9% 7.0% 5.1% 2.9% 5.0% Housing, water, electricity, gas and other fuels 21.1% 19.4% 18.7% 18.4% 18.7% 18.1% 19.4% 22.5% 27.4% 24.6% 23.6% Furnishings, household equipment and routine maintenance of the dwelling 4.9% 5.7% 6.9% 7.3% 7.8% 8.5% 8.9% 8.2% 6.8% 6.3% 6.9% Health 1.7% 1.7% 1.6% 1.7% 1.5% 1.5% 1.5% 1.8% 1.5% 1.7% 1.7% Transport 8.2% 8.5% 9.1% 9.9% 9.7% 10.1% 11.0% 12.5% 14.9% 27.6% 19.9% Communication 2.8% 3.2% 3.5% 3.5% 3.7% 3.7% 3.8% 3.9% 4.1% 3.2% 3.5% Recreation and culture 1.5% 2.0% 2.6% 2.8% 3.2% 3.8% 4.0% 4.2% 4.3% 5.4% 4.6% Education 0.9% 1.1% 1.0% 1.3% 1.3% 1.9% 1.9% 2.5% 3.2% 2.5% 2.4% Restaurants and hotels 3.5% 2.8% 3.2% 2.2% 2.3% 2.7% 2.8% 2.0% 2.1% 2.0% 2.2% Miscellaneous goods and services 6.3% 7.9% 8.1% 8.6% 10.0% 11.1% 11.9% 14.1% 16.0% 15.9% 14.4% Other unclassified expenses 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.3% 0.3% 0.3% 0.3% 0.3% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 31 IES, Stats SA, 2005/06 (% expenditure by expenditure deciles per expenditure group) Expenditure deciles Total R million Lower Upper Average household size 2,6 3,4 4,0 4,3 4,6 4,8 4,7 4,5 3,9 3,5 3,8 Main expenditure group % Food and non-alcoholic beverages 2.6% 4.3% 5.6% 6.7% 7.9% 9.2% 10.8% 13.0% 15.6% 24.3% 100% Alcoholic beverages and tobacco 3.0% 3.8% 4.1% 5.3% 6.5% 7.8% 10.9% 12.2% 19.1% 27.2% 100% Clothing and footwear 2.0% 3.3% 4.2% 5.6% 6.5% 8.0% 10.1% 13.5% 17.7% 29.2% 100% Housing, water, electricity, gas and other fuels 0.9% 1.4% 1.9% 2.3% 2.9% 3.6% 5.2% 9.2% 20.1% 52.4% 100% Furnishings, household equipment and routine maintenance of the dwelling 0.7% 1.4% 2.3% 3.1% 4.2% 5.9% 8.2% 11.4% 17.0% 45.7% 100% Health 1.1% 1.7% 2.3% 3.1% 3.4% 4.2% 5.6% 10.4% 15.4% 52.7% 100% Transport 0.4% 0.7% 1.1% 1.5% 1.8% 2.4% 3.5% 6.0% 12.9% 69.6% 100% Communication 0.8% 1.6% 2.4% 2.9% 3.9% 5.0% 7.0% 10.6% 20.1% 45.8% 100% Recreation and culture 0.3% 0.8% 1.3% 1.8% 2.6% 3.9% 5.6% 8.8% 16.2% 58.6% 100% Education 0.4% 0.8% 1.0% 1.7% 2.0% 3.8% 5.1% 9.7% 22.9% 52.7% 100% Restaurants and hotels 1.6% 2.2% 3.4% 3.0% 3.9% 5.7% 8.2% 8.8% 16.7% 46.4% 100% Miscellaneous goods and services 0.4% 1.0% 1.3% 1.8% 2.6% 3.6% 5.2% 9.4% 19.2% 55.4% 100% Other unclassified expenses 0.5% 1.0% 1.6% 2.3% 2.8% 3.8% 5.4% 8.9% 16.4% 57.2% 100% Total 1.0% 1.7% 2.4% 3.0% 3.7% 4.7% 6.3% 9.6% 17.3% 50.3% 100% 2.8% 5.1% 8.1% 11.8% 16.5% 22.9% 32.4% 49.7% 100.0% 32 16

17 IES, Stats SA, 2005/06 (% expenditure by expenditure group) Income deciles Total R million Lower Upper Average household size 2,6 3,4 4,0 4,3 4,6 4,8 4,7 4,5 3,9 3,5 3,8 Main expenditure group Food and non-alcoholic beverages 4.6% 5.7% 6.4% 7.5% 8.1% % 9.1% 9.8% 11.4% 14.8% 22.5% 100% Alcoholic beverages and tobacco 3.7% 4.6% 4.5% 5.8% 6.4% 9.0% 10.6% 11.9% 17.3% 26.1% 100% Clothing and footwear 3.3% 4.0% 5.0% 6.1% 6.7% 7.8% 9.7% 12.3% 17.3% 27.8% 100% Housing, water, electricity, gas and other fuels 1.6% 1.9% 2.4% 2.8% 3.2% 3.9% 5.4% 9.3% 20.1% 49.4% 100% Furnishings, household equipment and routine maintenance of the dwelling 1.8% 2.6% 3.6% 4.4% 4.6% 6.1% 7.2% 10.4% 16.6% 42.7% 100% Health 1.6% 2.5% 2.9% 3.5% 4.4% 5.2% 5.4% 9.2% 18.4% 46.9% 100% Transport 1.1% 1.5% 1.6% 2.0% 2.3% 3.4% 4.5% 8.1% 22.1% 53.4% 100% Communication 1.7% 2.1% 2.8% 3.3% 4.1% 4.8% 7.1% 10.4% 19.7% 44.0% 100% Recreation and culture 1.0% 1.2% 2.0% 2.4% 3.1% 4.3% 5.8% 8.2% 17.8% 54.1% 100% Education 1.8% 2.0% 2.2% 3.1% 3.3% 3.5% 6.2% 15.8% 21.7% 40.5% 100% Restaurants and hotels 3.9% 2.6% 3.0% 3.4% 4.2% 6.3% 7.6% 8.9% 18.7% 41.4% 100% Miscellaneous goods and services 1.1% 1.4% 1.8% 2.7% 2.9% 3.8% 5.1% 9.7% 20.6% 50.8% 100% Other unclassified expenses 1.3% 1.6% 2.2% 2.8% 3.3% 5.1% 6.3% 10.1% 18.0% 49.4% 100% Total 2.0% 2.5% 3.0% 3.7% 4.1% 5.1% 6.4% 9.8% 19.3% 44.3% 100% 4.5% 7.5% 11.2% 15.2% 20.3% 26.6% 36.4% 55.7% 100.0% 33 IES, Stats SA, 2005/06 (% expenditure on books, etc. and education) Expenditure deciles Lower Upper Average household size 2,6 3,4 4,0 4,3 4,6 4,8 4,7 4,5 3,9 3,5 3,8 Third expenditure group Books 0.05% 0.06% 0.07% 0.07% 0.10% % 0.12% 0.13% 0.18% 0.25% 0.22% 0.19% Newspapers and periodicals 0.19% 0.24% 0.29% 0.31% 0.33% 0.37% 0.55% 0.59% 0.41% 0.39% 0.41% Miscellaneous printed matter 0.00% 0.00% 0.00% 0.01% 0.00% 0.01% 0.01% 0.01% 0.01% 0.02% 0.02% Stationery and drawing materials 0.23% 0.22% 0.25% 0.25% 0.20% 0.21% 0.19% 0.18% 0.17% 0.11% 0.15% Sub total books & stationery 0.47% 0.52% 0.61% 0.64% 0.63% 0.71% 0.87% 0.96% 0.84% 0.74% 0.77% Education 0.92% 1.10% 1.02% 1.34% 1.27% 1.94% 1.93% 2.46% 3.20% 2.53% 2.42% Pre-primary and primary education 0.40% 0.49% 0.45% 0.42% 0.41% 0.47% 0.46% 0.62% 0.79% 0.62% 0.61% Secondary education 0.47% 0.47% 0.42% 0.41% 0.40% 0.52% 0.53% 0.55% 0.61% 0.74% 0.64% Tertiary education 0.03% 0.11% 0.11% 0.44% 0.39% 0.88% 0.87% 1.23% 1.73% 0.76% 0.93% Education not definable by level 0.02% 0.03% 0.04% 0.07% 0.07% 0.07% 0.07% 0.06% 0.07% 0.42% 0.24% Total 34 17

18 IES, Stats SA, 2005/06 (% expenditure on books, etc. and education per expenditure deciles) Expenditure deciles Lower Upper Average household size 2,6 3,4 4,0 4,3 4,6 4,8 4,7 4,5 3,9 3,5 3,8 Third expenditure group Books 0.28% 0.56% 0.84% 1.02% 1.85% % 3.06% 4.45% 8.90% 22.47% 56.58% 100% Newspapers and periodicals 0.48% 1.00% 1.66% 2.27% 3.01% 4.28% 8.47% 13.96% 17.40% 47.47% 100% Miscellaneous printed matter 0.00% 0.00% 0.00% 1.18% 1.18% 2.35% 2.35% 8.23% 16.49% 68.23% 100% Stationery and drawing materials 1.52% 2.57% 3.87% 4.92% 4.92% 6.56% 7.73% 11.23% 18.87% 37.82% 100% Sub total books & stationery 0.63% 1.18% 1.86% 2.46% 3.06% 4.39% 7.20% 12.04% 18.94% 48.24% 100% Education 0.39% 0.80% 1.00% 1.65% 1.95% 3.80% 5.06% 9.75% 22.87% 52.73% 100% Pre-primary and primary education 0.68% 1.41% 1.73% 2.06% 2.50% 3.70% 4.82% 9.71% 22.40% 50.99% 100% Secondary education 0.75% 1.28% 1.56% 1.89% 2.34% 3.82% 5.21% 8.29% 16.48% 58.37% 100% Tertiary education 0.04% 0.21% 0.29% 1.42% 1.56% 4.50% 5.94% 12.72% 32.28% 41.05% 100% Education not definable by level 0.07% 0.22% 0.37% 0.88% 1.10% 1.33% 1.84% 2.35% 4.86% 86.96% 100% Total 1.02% 1.74% 2.35% 2.97% 3.71% 4.73% 6.34% 9.58% 17.28% 50.27% 100% Total 35 Estimated Household expenditure & VAT, R million Expenditure Est. VAT Books Newspapers and periodicals Miscellaneous printed matter Stationery and drawing materials Sub total : Books & stationery Sub total : Education Pre-primary and primary education 8939 Secondary education 9425 Tertiary education Education not definable by level

19 Concluding remarks The VAT has been seen as a key instrument for securing macroeconomic stability and growth by placing domestic revenue mobilization on a sounder basis, so that the IMF has attached considerable importance to its proper design and implementation. Has the VAT lived up to its promises as an efficient, and fair source of revenue? ( IMF: The Modern VAT, 2001). The proposal to zero books is not supported. If there is a case to support students it should be done more directly and on budget. Resources should be made available for school and public libraries to ensure better access to reading material for all citizens. 37 Thank you 38 19