PARLIAMENT, February 21 (ANA) - Audit firm PwC said on Wednesday that the South African government's decision to hike the value-added tax (VAT) rate by one would have a major impact on already struggling households, but said that this was a correct approach in raising much-needed revenue.
Finance minister Malusi Gigaba announced in his Budget Speech that the VAT rate will be increased by one percent to 15 percent with effect from 1 April 2018, the first adjustment since 1993. This increase is expected to raise additional revenue of 22.billion for the fiscus.
Gigaba said the VAT increase was adopted to protect the poor because 80 percent of VAT will affect higher income while vulnerable households would be compensated through the current zero-rating of basic food items such as maize-meal, brown bread, dried beans and rice, and an above average increase in social grants.
Lesley O'Connell, PwC VAT partner said that this increase would result in additional costs for consumers as they would now have to pay an additional VAT on any purchases of goods or services from VAT vendors.
"This will have a major impact on households' already tight budget. The implementation of the VAT increase for certain business will also be complex, and the implementation date of 1 April does not leave much time to allow businesses to effect the necessary system changes and enhancements," O'Connell said.
"This is the correct approach as we see further reliance on indirect taxes. This raises large amounts of revenue with relatively small increases in rates due to its broad base and economic efficiency."
O'Connell said that the effect that there is no amended list of zero-rated foodstuffs of the existing 19 basic food items was positive as it maintains the integrity and efficiency of the South African VAT system.
Economists had already predicted that a VAT increase was unavoidable as government last year announced a R50.2 billion revenue shortfall which has since reviewed it to R48.2 billion.
Opposition parties and trade unions, however, have been up in arms saying that the VAT increase would be disastrous for the poor and that they would not support it.
- African News Agency (ANA), Editing by Stella Mapenzauswa
