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STORM IN TEACUP ECONOMY

01/08/2018 02:47:00 By Thabiso Dlamini

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Time is up today, it is August 1 and all consumer goods and services have to reflect the one per cent point increase in value added tax (VAT) as it rises from 14 to 15 per cent. In the name of development, government needs money to fund what has painfully become a national budget of unsustainable expenditures. Unfortunately, consumers have no choice but to pay for the cost of unsustainable development in Eswatini.

Think about it, VAT is like free money to government: money has to be paid to government each time a product/service reaches the final consumer. It is a genius money gauging system because so long as shops/businesses are open and tills running, government is cashing in on its VAT account. According to the Swaziland Revenue Authority (SRA) website, VAT is an indirect tax that is levied on the consumption of goods and services in Eswatini, and is also levied on the importation of goods and services into the country. Basically, government makes you pay for consuming goods within the boundaries of what we call Eswatini.

Therefore, as consumers, we need to go back to the drawing board to reconfigure our monthly budgets. Just yesterday, MTN announced that it would be increasing charges to reflect the changes in VAT. VAT affects the price of most, but not all, of consumer purchases. Some products are exempt from VAT altogether, such as postage stamps, financial services, insurance, leasing or letting of immovable property, social welfare, supply of electricity, burial and cremation services, etc, while others are zero-rated (consumer pays zero per cent VAT), such as maize and mealie-meal, dried beans, agricultural inputs, paraffin, supply of dairy products, brown bread, animal feed, samp, fresh fruit and vegetables, fresh eggs, rice, vegetable oil, medicines and drugs, school textbooks, petrol, diesel and liquid gas.

A person cannot survive on these VAT exempt and zero-rated products alone, we depend on many more other goods and services that do attract VAT, and the reality is that there is nothing we can do to avoid the increase on many of our household bills.

Increase

Even though the one per cent increase in VAT may seem small to our overall monthly budgets, it is going to have a knock-on effect because, technically, most of our expenses will increase by one per cent. For the many people in Eswatini who are on tight budgets, these small price increments will eventually take their toll.

Even before the one per cent rise in VAT, prices of goods and services have been rising, especially prices of food, fuel and utilities. The unfortunate thing is that businesses can raise their prices beyond one per cent and still be able to justify the price rises as a result of the changes in VAT,which supposedly increase the cost of doing business. I don’t think SRA or government will be checking the price mark-ups in the different shops and business outlets to verify that the expected price changes will tally-up exactly to the one per cent rise in VAT.

As a matter of fact, businesses that are VAT registered can claim their 15 per cent VAT as an input cost of production from SRA under the input credit mechanism. The input credit mechanism gives registered businesses back much of the VAT they pay on purchases and expenses used for making taxable supplies and, as a result, it eliminates the ‘tax on tax’ characteristic of Sales Tax which VAT replaced in 2012 (SRA website). It is not the business that pays VAT, but the final consumer of the product or service produced by the business.

Section 28 and 51 of the VAT Act refers; taxpayers must keep accounts and records for at least five years. Businesses have up to five years to claim input tax credit; the SRA can also make an assessment going back as far as five years in respect of output tax.

So technically, VAT should not increase the cost of production for a VAT registered business. Instead, it should simply increase the VAT component of final goods and services by one per cent. We are being sold a raw deal because there are no checks and balances in the system to make sure that businesses do not take advantage of the VAT changes to sneak in their own price increments.

Eswatini is a small economy with many people surviving on shoe-string budgets. With more money being swindled out of people’s pockets, the economy will continue to stagnate as people will now aggressively keep a sharp eye on their daily, weekly and monthly spending habits. The way things are going, government is brewing a perfect storm against consumers in Eswatini. If government keeps taking our money, it won’t be long before all of us start queuing up for hand-outs from government!