Treasury and MPs on collision course over VAT hike
Some of the ANC committee members have proposed that the increase should only be applicable for one year
Treasury and members of parliament’s finance committee are set on a collision course over the VAT increase, with some MPs insisting that a time limit should be imposed on the additional tax.
Some of the ANC committee members have proposed that the increase should only be applicable for one year, while committee chair Yunus Carrim suggested during a committee meeting on Tuesday that the law should stipulate that a review of the necessity for the hike be undertaken after a specified period. "This [increase] can’t be here forever," Carrim insisted.
The rise in VAT from 14%to 15% was announced in the February budget and took effect from April 1.
It is expected to raise R23bn annually and was necessary to fill a huge gap of R48bn in revenue collection in 2017.
"The committee at this stage, unless it is presented with a convincing argument by the executive otherwise, believes that there must be a time frame on the VAT increase," Carrim told the meeting.
"We take into account that there are several other considerations — economic growth, the need to contain expenditure in the state, not least parliament, the need to extract from those who are responsible for illicit financial flows the monies that are due to the fiscus, and a variety of other attempts to get growth and job creation."
But Treasury deputy director-general Ismail Momoniat said the state was in need of revenue. "We don’t want to mislead anybody. The VAT increase is going to be here for a while. It is not a one-year matter.
"The money that we need, if you look at the fiscal envelope, is actually required at least for the medium-term expenditure framework period [which spans three years]," Momoniat said.
Unless government expenditure was reduced drastically and economic growth picked up, there was no scope to reduce tax rates over the next three to five years, he said.
The increase will be provided for in the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, which still has to be adopted by the committee. They can insert a clause limiting the lifespan of the increase and the requirement for a review if it so decides.
Momoniat said Treasury was still working on the estimated cost of zero-rating six additional items, as proposed by a panel of experts that estimated the revenue loss to the fiscus of this zero-rating would be R4bn.