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Controversial Tax Threatens South African Negotiations

A SHOWDOWN between the government and its opponents over the introduction today of a system of Value Added Tax is threatening to halt recent progress toward political negotiations.Jay Naidoo, general secretary of the anti-apartheid Congress of South African Trade Unions (COSATU), said at a joint news conference with the African National Congress (ANC) yesterday protests would begin in Pretoria today and culminate in a two-day national strike in November. COSATU and its affiliates are demanding a 12-month exemption of basic foods, medicines, electricity, and water. Finance Minister Barend du Plessis was expected to announce last night a unilateral exemption of between two-to-six months on basic foods such as brown bread, corn and corn products, canned fish, and beans. ANC Secretary-General Cyril Ramaphosa, who joined ANC President Nelson Mandela in a crisis meeting with President Frederik de Klerk and Mr. du Plessis on Saturday night, has warned that a continued hard line by the government on the Value Added Tax (VAT) issue could jeopardize imminent constitutional talks. COSATU has led the resistance to a 10 percent VAT to replace the existing 13 percent General Sales Tax (GST). Although the proposed VAT rate is less than the existing GST, the new tax is added at the various stages of production and consumption, compounding the tax and resulting in overall price increases on some commodities. The government claims that VAT will raise the cost-of-living of the poor by 1.6 percent, but anti-apartheid economists have estimated the cost as closer to 5 percent. COSATU, which has already won a series of major concessions from the government, has presided over a coalition of 43 trade union, consumer, and professional organizations opposed to the introduction of the tax in its present form. The campaign has boosted COSATU's standing in the anti-apartheid movement and consolidated its claim to be represented as an independent player when negotiations over a new constitution begin. At a series of crisis meetings last week, the anti-VAT delegation failed to reach an accord with Mr. De Klerk and Du Plessis, who has been widely criticized for his inflexible stand on the issue. Finance officials argue that the new tax system will be undermined if further exemptions are made. They favor a system of targeted relief for the poor. COSATU and the ANC have called for the new VAT system to be shelved until it can be discussed by an interim government. "Du Plessis has argued that the costs of postponing the implementation date of VAT will be too high," says Naidoo. "But we believe that the costs of social and industrial conflict may be much higher." The ANC does not oppose the principle of VAT but objects to the attempt to impose a new tax system which will not be easy for an interim government to change. The VAT was proposed in 1987 by Judge Cecil Margo, who headed a tax reform commission. The government has tried to defuse growing resistance to the VAT by a series of concessions aimed at delaying the implementation date. Five weeks ago Du Plessis announced a package of relief measures and reduced the original VAT rate of 12 percent to 10 percent. He also exempted state hospital services and medicines, trade union subscriptions, and doubled direct assistance to the poor from $75 million to $150 million. But he also announced a 10 percent increase in the price of gasoline and increased excise duties on luxury items such as tobacco, alcohol, televisions, and automobiles. Du Plessis said this would make up $320 million of the $480 million that the 2 percent drop in the VAT rate would cost the state. VAT supporters argue it is a better system than GST because it can more easily replace income taxes and can be used to tax exports, small businesses, and ensure a more equitable distribution of income.

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