Tax increases are inevitable to plug SA’s gaping revenue hole
If the government doesn’t raise the VAT rates, where else can it turn for extra revenue?
In November 2017, the government announced additional steps it would take to reduce its budget deficit by R40bn in the 2018–19 financial year, through reducing expenditure by R25bn and increasing revenue by R15bn. This was in addition to R15bn-worth of additional tax hikes announced in the 2016 national Budget and R31bn in additional spending cuts of R15bn and R16bn announced in the 2016 and 2017 national budgets, respectively. The latest monthly government budget figures for December 2017 suggest revenues are likely to undershoot the February 2017 estimates by close to R50bn, broadly in line with the government’s estimates outlined in the October 2017 medium-term budget. The value-added tax (VAT) rate in South Africa was last raised to 14% in 1993 (from 10%) and remains below that of a number of the country’s emerging-market peers. Moreover, South Africa’s narrow tax base makes the case for a rise in VAT over a further increase in personal income-tax rates. The Treasury’s tax stati...
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