Ramaphosa warned about big VAT increase to fund grants

The Sunday Times reports that South African residents could soon face higher value-added tax (VAT) rates to sustain the R350 social relief of distress (SRD) grants.

This was shortly before a City Press report that the Department of Social Development had returned more than R15 billion worth of SRD grant money to National Treasury after it failed to spend the allocated budget.

South Africa introduced the SRD grant to help mitigate the impact of job losses caused by the Covid-19 pandemic and the various government lockdowns instituted worldwide.

Citing government sources, the Sunday Times report refers to a top-level meeting with National Treasury officials at Spier Wine Farm in Stellenbosch in early September 2023.

The meeting included a presentation to President Cyril Ramaphosa proposing, among others, a 1%–2% VAT increase to generate an additional R24.5 billion to R49.4 billion for the grant.

The meeting came after a warning from Treasury that the government faces intense revenue and spending pressures.

However, this week, City Press reported that the Department of Social Development returned billions budgeted for the grants after implementing a lower income threshold, and because several applicants’ incomes couldn’t be verified.

However, citing government insiders, City Press reported that the department didn’t attempt to contact applicants.

“The department claims that we couldn’t locate applicants through their phones, but there were no initiatives to reach out,” the insiders said.

“How can we expect people from rural areas to receive SMSes when we have so much load shedding?”

According to the insiders, some of the unpaid funds were transferred to other departments:

  • R2.94 billion was transferred to the Department of Public Enterprises to repair and replace Transnet assets damaged by floods in KwaZulu-Natal
  • R755 million was transferred to the Department of Defence for extended deployment as part of Operation Vikela in Mozambique
  • R1.77 billion was transferred to other departments

Grant system “glitch” leaves 600,000 South Africans in a pinch

News of government’s grant funding challenges comes as the Postbank suffered a nationwide system failure, which affected payments to 600,000 grant beneficiaries last week.

In August 2023, Postbank migrated to a new payment system, which disrupted payments to 600,000 social grant recipients since Monday, 11 September 2023.

The “glitch” that resulted in these recipients going unpaid was caused by a “payment switch” software dispute regarding its migration to a new supplier.

Several members of Postbank’s board resigned, citing a hostile attitude from communications minister Mondli Gungubele.

However, on Thursday, 14 September, Gungubele said he was about to fire the whole Postbank board anyway — for this failure and others — and that the company had been placed under administration.

Gungubele announced that a forensic investigation found that Postbank had maintained contracts with suppliers unlawfully.

The minister said governance issues at Postbank had been a barrier to the government’s goal to build a functional state bank that would benefit poor people.

Mondli Gunubele, South African minister of communications.

Social development minister Lindiwe Zulu said it is important for Postbank to communicate with government when it faces problems to ensure there is always a Plan B available.

This isn’t the first time technical issues have presented a problem for Postbank.

In December 2022, reports revealed that Postbank insiders helped criminal syndicates steal over R150 million that should have gone to South African Social Security Agency (Sassa) grants.

The reports came after the company blocked grant recipients from making ATM withdrawals using their Sassa cards after R18 million was stolen.

Several operational security flaws allowed fraudsters to steal millions from the financial institution.

Highly sensitive systems, including Postbank’s integrated grant payment system, were being accessed using a single set of credentials that up to 40 employees, including junior staff, have.

Former Postbank interim CEO Lucas Ndala said all indications point to an inside job and that similar disturbances had been observed monthly since the company took over grant payments from the Post Office.

“It points to a concerted effort of sabotage against the bank,” Ndala said at the time.

Now read: Ramaphosa considers cutting number of government departments in South Africa

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Ramaphosa warned about big VAT increase to fund grants