Mark Burke: Treasury’s school tax blunder - Parents to pay for policy folly

Key topics:

• Draft tax bill targets schools with unfair VAT exit charges

• Costs likely to be passed on to already burdened parents

• No impact study done despite major financial consequences

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By Mark Burke*

There is precious little that politicians agree on. No longer does everyone respect the primacy of the constitution or that corruption is undesirable. Nothing is sacred. Except perhaps education. It’s tough to find a politician who advocates for dropping a tax bill on schools, which is why a particular provision in the draft tax bill is strikingly bizarre. 

The law change is an attempt to deregister schools as VAT vendors, starting next year and then burden them with an exit charge for a decision that they did not make. 

For context: most of what schools do — from charging fees to giving us nightmares about maths exams — is VAT exempt. However, there are schools who generate substantial income from non-educational activities. They rent out facilities or run tuckshops. These schools are required to register as VAT vendors, pay their VAT receipts over to Sars and are entitled to claim VAT input deductions. 

If the law change goes ahead and schools are deregistered as VAT vendors, the so-called deemed supply clause kicks in. The idea being that when you stop being a VAT vendor, Sars assumes you’ve sold everything you previously claimed VAT on — and demands the money back. In the normal course of business, this clause works. But this is not the normal course of business. The forced deregistration followed by a tax bill has profound and unfair consequences that will in all likelihood be passed on to us as parents. 

Even Treasury admits this clause will be tough and there is a provision to give schools twelve months to pay back the money. But this is neither good enough, long enough nor fair enough. 

What’s more, it’s clear that National Treasury and Sars understand the potential implications. A similar but broader provision that also targeted universities was put into the 2024 edition of amendments to tax laws only for National Treasury to withdraw this plan. So what’s changed in a year? Perhaps it’s a case of, if at first you don’t succeed - try again but choose a smaller opponent. 

If government is adamant on deregistering schools, then it needs to do so without causing harm. There is no reason why schools who did not choose to deregister should be forced to pay an exit tax. 

Much about this provision remains unclear. We’re uncertain if the law change will only affect ‘elite schools’ or if the thousands of middle and working class families that are also forced to use the independent school system will be hit and what the size of that hit will be. No impact study was tabled alongside these bills.

This will have to change. We cannot attempt to pass tax laws without understanding their consequences – we’ve seen this year where that leads. Earlier this year, the country rejected an unjust tax. We can’t now ignore an attempt to sneakily hit schools with a bill that was neither invited nor deserved.

*Dr Mark Burke MP: Democratic Alliance Finance Spokesperson