Finance minister Malusi Gigaba has announced that South Africa will see its first VAT rate increase for the first time in 25 years. This and other new tax measures announced by Finance Minister Malusi Gigaba in the 2018-19 budget tabled in Parliament Wednesday will raise an additional R36bn for the fiscus.
VAT is to increase by one percentage point to 15% from April 1 this year, to raise R22.9bn more for the fiscus.At the same time R85.7bn has been slashed from government spending over the next three years in a bid to accelerate the drive to narrow the budget deficit and stabilise debt.
The minister noted in his budget speech that “the fiscal framework has improved markedly since the October medium-term budget policy statement (MTBPS). At the time of the MTBPS government debt was shown to be on an unsustainable path.”
“The VAT increase has an unpopular social element given that it has a bigger impact on the lower to middle income market, while at the same time our VAT rate is below the global average, therefore the increase is somewhat justifiable in addressing the fiscal gap,” he said.
However Gigaba added that the current zero-rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households and vulnerable households will also be compensated through an above average increase in social grants.