By Joseph Maluleke, Senior Tax Practitioner & Attorney, Maluks Attorneys, Sandton
The South African government stands at a fiscal crossroads. With a widening budget deficit and slowing economic growth, policymakers are desperate for solutions. The recently proposed 2% VAT hike—widely rejected by Government of National Unity (GNU) partners, civil society, and business leaders—was a clear misstep. Raising VAT in an already strained economy is not only economically unsound but also politically unfeasible.
South Africa does not have a revenue problem; it has a growth, compliance, and expenditure problem. The solution, therefore, is not to tax more but to tax smarter. As a tax practitioner and attorney at Maluks Attorneys, I have seen first-hand how an excessive tax burden fuels non-compliance, capital flight, and economic stagnation. If the government is serious about long-term stability, it must adopt growth-friendly fiscal strategies that prioritise economic expansion over punitive taxation.
1. VAT: The Wrong Tax at the Wrong Time
A VAT increase is a blunt instrument that disproportionately harms lower- and middle-income South Africans. Consumption taxes, by their nature, do not differentiate between the rich and the poor. In a country where social grants account for over 60% of government expenditure, further eroding disposable income will only increase reliance on state support rather than alleviate fiscal pressures.
Raising VAT in isolation will:
• Suppress consumer spending, slowing economic activity and reducing corporate tax revenue.
• Hurt small businesses, which are already struggling in a high-cost environment.
• Disincentivize compliance, as overburdened taxpayers seek ways to minimise their liabilities.
Instead of broadening the tax base, a VAT hike will shrink it, exacerbating South Africa’s fiscal challenges rather than resolving them.
2. The Real Problem: Unsustainable Government Spending
The real fiscal crisis lies in excessive government expenditure and inefficient budget management. The state cannot indefinitely rely on a shrinking group of taxpayers to fund its growing commitments. South Africa’s history offers a lesson: the Growth, Employment, and Redistribution (GEAR) strategy of 1996, despite its shortcomings, resulted in a decade of economic expansion and even fiscal surpluses.
Today, the government is trying the opposite—raising taxes without stimulating economic growth. This is not a sustainable path.
Before increasing any tax, the state must address:
• Irregular and wasteful expenditure, which costs the country billions annually.
• State-owned enterprise (SOE) inefficiencies, particularly in Eskom and Transnet, which continue to drain public funds.
• Corruption and mismanagement, which remain the largest barriers to effective fiscal management.
Until these issues are resolved, tax hikes will only delay the inevitable collapse of an unsustainable fiscal model.
3. Smarter Alternatives to a VAT Increase
Instead of relying on consumption tax increases, South Africa must explore progressive, growth-oriented tax policies. The government should focus on expanding the tax base rather than overburdening compliant taxpayers.
A. Strengthen Tax Compliance
South Africa’s tax burden is already one of the highest among developing economies. If compliant taxpayers feel they are being “taxed to death,” they will seek ways to avoid or evade taxation altogether. The government must:
• Enhance SARS enforcement to crack down on tax evasion by high-net-worth individuals and multinational corporations.
• Close corporate tax loopholes that enable profit-shifting to low-tax jurisdictions.
• Formalise the informal sector, which remains a large but untapped tax base.
B. Targeted Tax Reforms Instead of Blanket VAT Hikes
Instead of indiscriminately increasing VAT, the government should implement sector-specific taxation, including:
• Luxury goods taxes on high-end vehicles, real estate, and non-essential imports.
• Windfall taxes on industries benefiting from global price surges, such as mining and energy.
• Digital economy taxation, ensuring foreign digital companies operating in South Africa pay their fair share.
C. Job Creation and Economic Expansion
The most sustainable way to close the budget deficit is through economic growth. A larger workforce means more taxpayers and less reliance on social grants. This requires:
• Investment-friendly policies to attract foreign and local capital.
• Incentives for small businesses, including tax breaks for job creation.
• Public-private partnerships (PPPs) to finance infrastructure projects without increasing debt.
4. What Government Must Avoid
While seeking fiscal solutions, policymakers must resist quick-fix measures that will ultimately do more harm than good.
- No further VAT hikes on essential goods – Best tax practices globally show that food, healthcare, and education should remain zero-rated to protect vulnerable communities.
- Avoid excessive taxation on the middle class – The backbone of the economy is already overtaxed. Further income tax hikes will discourage economic participation.
- Preserve retirement savings incentives – Over-taxing pensions will create long-term financial instability and deter savings.
5. Conclusion: A Call for Economic Growth, Not Higher Taxes
South Africa cannot tax its way out of a fiscal crisis. A VAT increase is a short-term fix that will worsen economic hardship, shrink the tax base, and discourage compliance. The real solution lies in economic expansion, job creation, and responsible fiscal management.
At Maluks Attorneys, we firmly advocate for policies that grow the economy rather than extract from it. Instead of continuously squeezing an already overburdened taxpayer base, the government must restore business confidence, incentivise compliance, and create a broader and more sustainable revenue base.
It is time for bold reforms—not regressive taxation. South Africa’s fiscal future depends on growth-friendly policies, smarter tax strategies, and disciplined expenditure management. The answer is not a blunt VAT hike, but a comprehensive, forward-thinking economic plan.
About the Author
Joseph Maluleke is a Senior Tax Practitioner and Attorney at Maluks Attorneys, Sandton. With over 20 years of experience in tax law and financial strategy, he provides expert advisory services to businesses and individuals navigating South Africa’s complex fiscal landscape. Maluks Attorneys specialises in tax dispute resolution, compliance advisory, and strategic tax planning for corporations and high-net-worth individuals.
