For the first time in democratic South Africa value-added tax (VAT) is raised – by one percentage point to 15% as part of the “tough but hopeful” Budget Finance Minister Malusi Gigaba presented on Wednesday. The VAT hike is central in a set of tax increases, including higher estate and luxury goods duties and an extra 52 cents per litre in fuel levies, to generate an additional R36-billion for the national purse. The tax hikes come alongside R85-billion government expenditure cuts over the next three years to fund inclusive economic growth and social spending, from free higher education to health care and social protection. By MARIANNE MERTEN.
The increase in value added tax (VAT) to 15%, from 14%, with effect of 1 April 2018, is a tough political choice. Trade unions and civil society organisations are on public record opposing this option.
But Finance Minister Malusi Gigaba, speaking to media ahead of delivering his maiden Budget, maintained this was the right decision, and one with the least negative consequences for economic growth or social protection. And South Africa’s VAT rate was still below peer countries like Argentina, Zimbabwe and Russia.
There would be talks with the trade unions once the announcement was made. “It is difficult to consult about taxes prior to the Budget because we don’t want not to take the decision,” said Gigaba, adding that it was important to note the basket of zero-rated food remained to protect poor households. And above inflation social grant increases, alongside steps towards free higher education, were key in shielding the poor. In any case, the VAT increase would predominately affect higher income earners.
By Marianne Merten.
Full story at Daily Maverick.
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