New tax measures, predominantly aimed at consumers, will fund higher education and government debt, said finance minister, Malusi Gigaba, during his budget speech yesterday afternoon.
These measures, which will raise approximately R36 billion in 2018, most notably includes an increase in Value Added Tax (VAT) from 14% to 15% – the first increase since 1993.
“I am surprised that it was not a 2% increase,” said Peter Mansfield, retired local government leader and entrepreneur. “The government's cupboard is bare and it’s risking default on its debt.”
In his speech, Gigaba acknowledged that it was necessary to increase VAT in order to maintain the integrity of South Africa’s public finances.
He stated that, “Despite an improved outlook, government still faces a revenue gap of R48.2 billion in the current year.”
Comparing VAT to other countries
Mansfield believes VAT is the most efficient form of tax collection, not just in South Africa but in neighbouring countries, like Zimbabwe and Namibia, where higher VAT rates are already in place.
According to Tertius Troost, tax consultant at Mazars, this is how Treasury was able to justify the increase in the VAT rate.
“From the comparison to other countries we can see that the international average is around 19%, so there is still room for Treasury to manoeuvre,” said Troost.
Consumers to carry tax burden
Although income tax has also been slightly adjusted, the majority of taxes will be collected from the increase in VAT, increases in the general fuel levy, and the introduction of the sugar tax and emissions taxes.
Mike Teuchert, national head of taxation at Mazars, refers to these taxes as ‘stealth taxes’ because, since they are built into the prices of goods, their full weight won’t be immediately evident to consumers.
“The stealth taxes will have a significant effect on consumers,” said Teuchert, who was also disappointed that the Budget did not include enough long-term solutions.
Gigaba explained at a press briefing that although these taxes are not ideal, South Africans need to look at the budget as a whole because it will lead to overall growth.
Teuchert disagreed and said, “The only way to stabilise South Africa’s budget is to increase jobs and actually grow the economy, and we are still not seeing enough of that.”