VAT increased to 15%
Finance Minister Malusi Gigaba has announced a one-percentage point increase in Value Added Tax in the 2018 Budget‚ the first adjustment to taxation on goods and services under the ANC government.
The first VAT increase in 25 years‚ which kicks in from April 1‚ is a controversial move to raise public finances in tough economic conditions to‚ among other things‚ fund and the fee-free education plan announced by former president Jacob Zuma in December.
South Africans are to be hit with more pain from April with a 52 cents per litre escalation in the fuel price. This is due to a 22 cents increase in the general fuel levy and 30 cents per litre rise in the Road Accident Fund levy.
The tax hikes are part of a package of measures to raise an additional R36-billion in light of a revenue gap of R48.2-billion in the current year.
The VAT increase will increase the cost of living for all households and will raise R22.9-billion for the fiscus. Below-inflation adjustments to personal income tax brackets will contribute R6.8-billion.
Alcohol and tobacco excise duties or sin taxes‚ will increase between 6 and 10%.
The excise duty rate on luxury goods goes up from 7% to 9%.
“This is a tough but hopeful budget‚” Gigaba said in his first budget presentation since his appointment by Zuma in a much-condemned cabinet reshuffle last year.
While the VAT increase from 14% to 15% is expected to send shockwaves‚ Gigaba said it was “unavoidable if we are to maintain the integrity of our public finances”.
“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‚” said Gigaba.
At a media briefing ahead of the Budget‚ Gigaba said the National Treasury had to accommodate new spending priorities‚ including the R57-billion allocation towards the fee-free higher education and training plan.
Gigaba has announced an above-inflation increase in social grants‚ which he hopes will counter the sting of the tax hike.
The old-age pension will go up from R1‚600 to R1‚690 on April 1 and by a further R10 on October 1. The child support grant is being raised from R380 to R400 on April 1‚ and a further R10 on October 1.
The cabinet approved expenditure reductions amounting to R85-billion‚ Gigaba said‚ enabling the expenditure ceiling to be revised down marginally over the next three years.
In the Medium Term Budget Policy Statement in October‚ it was projected that the there would be an under collection in tax revenue of R50.8-billion. There has been an improvement in revenue collection since then with the shortfall now projected at R48.2-billion.
Gigaba said there was a renewed sense of confidence and optimism following a difficult year for the economy and fiscus‚ and that he hoped that the measures in the Budget would stave off another credit ratings downgrade.
He said that the Budget was not just about debt stabilisation but was also aimed at restoring economic confidence.
He said the international rating agencies would see that government was prepared to take tough decisions.
GDP growth is projected at 1%‚ up from 0.7% in October. The budget deficit is projected to narrow from 4.3% of GDP in this year and to 3.5% in 2020/21.
South Africa’s consolidated budget revenue for the 2018/19 year is R1.49-trillion while expenditure is R1.67-trillion.
The deficit is therefore in excess of R180-billion.