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COVID-19 vaccine: Can Tax increases fund the costs?

Last Updated Feb 2021

Johannesburg, 13 February 2021 – Will South Africa is, as are most countries in the world, faced with difficult decisions regarding the funding for the procurement of the COVID vaccine, writes Pieter Faber, Senior Executive for Tax at SAICA, and Dr Sharon Smulders, Project Director for Tax Advocacy at SAICA.

How many vaccines are needed?

The South African Government wants to secure vaccines to vaccinate 40 million South Africans (that is, 80 million doses will be required) by the end of 2021. Many commentators have said that this is unrealistic taking into account the late procurement of the vaccine and considering the logistical challenges with the distribution of the vaccine if it were left in the Government’s hands, not to mention the concerns surrounding the funding of the vaccine.

How much will it cost?

The costs reported in the media range from $3 per dose (approximately R45 using an exchange rate of R15 to the Dollar) to $25 per dose (approximately R375) depending on the source of the vaccine. This would equate to approximately R3.6 billion to almost R30 billion. If a match box calculation is done, on the assumption that 50% of the population will get the vaccine which cost R45 ($3), 30% of the population at R150 ($10) and 20% at R375 ($25), the vaccine would cost the government R11.4bn.

Average estimated cost calculation:

Cost per dose (Rands)

# of doses per person

% of 40m people to be vaccinated at this cost

Number of persons (billions)

Cost of vaccine (Rbn)


















It is not just the cost of the vaccine that needs to be secured, but also the logistics behind the distribution thereof. This includes the costs such as the syringes, the gloves to administer the vaccine, the personnel costs as well as the storage and transportation costs of the vaccine. The quantum of these costs is not known but an overall cost of R20bn to fund the cost of the vaccine and distribution thereof as has been reported in the media would not appear to be unrealistic. However, as approximately 9 million individuals will be covered by their medical schemes, this will not be a government cost. This means that only R15.5bn will be required to be funded by government.

How will these costs be funded?

It is the Government’s aim to ensure that the vaccine is provided free of charge to all citizens. Yet the dire economic situation of South Africa is evident with the economy estimated to have shrunk between 5% and 8% due to COVID. In the Medium Term Budget Policy Statement, a budget deficit of R761 billion is predicted for 2020/21. However, revenue collections as of November 2020 are R110bn down if compared to the prior year to date figure. According to SAICA’s calculations, it is estimated that the revenue shortfall compared to the Medium Term Budget Policy Statement will be R16.8bn

Taking this into account, the Government has four choices to fund the vaccine:

  1. Raises taxes
  2. Reduce expenditure
  3. Borrow the money
  4. A combination of the above three options

This article will focus on the first option – raising taxes. Various taxes can be increased to raise the tax, or alternatively a new tax could be introduced. Such a tax could be a wealth tax that has been mentioned by the Davis Tax Committee and a recent study conducted by groups including the World Inequality Lab. This recent study has stated that a wealth tax could raise R160bn if a tax was levied on net wealth above R3.82 million, or the top 1% of the population. In addition to various concerns that we have with this estimation, the introduction of this tax would face various challenges such as how does one determine ‘net wealth’ (what should be included or excluded). For instance, should your primary residence, car, pension or insurance policy be included? Another concern is whether this tax would cause capital flight – will the rich (continue to) leave South Africa ultimately leaving the country with diminishing returns? Not to mention all the other disadvantages of a wealth tax such as reducing investment, wages, savings and leading to possible increases in debt and administration costs. It is unclear if these questions can be answered succinctly before embarking on this option, as was raised by the DTC in their report.

Other taxes that could be increased are of course the personal income tax (PIT), Value-added Tax (VAT) and Corporate Income Tax (CIT) and Customs and Excise taxes (C&E).

Personal Income Taxes

The collection of revenue from PIT as of November 2020 are R17bn behind that collected in the previous year (employees’ tax is R30bn behind). This highlights the wide scale loss of jobs in the country. So not only would the government need to fund this gap, but any increases in this tax would put an additional strain on the already burdened and shrinking taxpaying population. In 2018/19, bracket creep raised R13bn, but this figure will be vastly reduced in the current year (only a few billion Rands) considering the extent of job losses and many individuals (other than the public sector) receiving marginal increases, if any at all.

Despite these concerns, should another tax bracket be added above the current maximum rate of 45% (i.e. 48% for those earning above R2m), this would raise approximately R4.9bn. Caution should be exercised when considering this amount as the amount was calculated based on the 2020 tax statistics that took into account the number of taxpayers in 2018 (before COVID hit) and would most likely be significantly less now.

Another way of raising the money for the vaccine would be to remove the medial tax credit. This is only a consideration as it is more predictable and less regressive than increases in PIT. Removing this credit would save approximately R27.8bn. However, we would not propose cutting this in full as it directly impacts on the medical schemes membership and this would affect affordability in the future. Should it, however, be cut, we would suggest that be cut by a third, resulting in approximately R9bn being available to fund the vaccine.

Value-added Tax

The collections from VAT are R33bn behind that of the previous year (as of November 2020). An increase in 1% (assuming economic growth of 3% and a tax growth of 1:1) would bring in at most an additional R20,4bn. However, businesses are struggling to stay afloat and any increase in the VAT rate would, as was evident from the previous increase in the VAT rate, have serious opposition from unions and other stakeholders.

Corporate income tax

CIT collections are 25bn behind that of last year (as of November 2020), clearly indicating the extent of the effects of COVID on the corporate private sector. Not only is South Africa’s corporate tax rate considered already high internationally, but many companies are surviving on debt and reserves to fund their losses due to a battered economy. Any increase in the 28% tax rate would thus not have the desired effect and would not be recommended.

Customs and Excise taxes

Customs duties as of November 2020 are R6bn down from the prior year, with excise taxes shrinking almost 50%. The ban on the sale of cigarettes and alcohol due to COVID can largely be attributed to this reduction. It is interesting to note that the SACU payments have gone up by R10bn if compared to payments made in the prior year (November 2019), indicating that these countries are buying more from South Africa. This could realize an additional R70bn cost for South Africa. For regional and political stability, we realize that this arrangement cannot be cancelled, but given its cost to South Africa, a new formula might have to be considered to ensure that this payment is more affordable.


Funding for the vaccine will not be an easy decision for the government that is already heavily geared and cannot afford to go deeper into debt. The taxpaying population is under severe strain and increasing taxes could raise the revenue needed, but the cost of this would be very high. It should also be noted that the increases in taxes will take between 12 to 24 months to collect (other than VAT that could start collecting money within two months from the date of change). Alternatives to increasing taxes should rather be explored. For instance, it is evident that many government departments have not spent their full budgets as of November 2020. If in the last quarter of the year, all departments could be urged to closely manage their spending, substantial savings could be made. Those departments that have reached 66% of their allocated budgets by November 2020, should be monitored closely to ensure that they do not run the risk of overspending in the last four months of the fiscal year.

Of course, a mixture of increasing taxes, reducing government expenditure, and obtaining more debt is probably the best option. Any assistance from the private sector should be welcomed as now is the time that social solidarity is needed.


The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 50 000 members and associates who are chartered accountants (CAs[SA]), as well as associate general accountants (AGAs[SA]) and accounting technicians (ATs[SA]), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.

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