Supplementary Budget 2020

No hike in VAT rate expected

Johannesburg - A value added tax (VAT) rate increase by Finance Minister Nhlanhla Nene would assuredly satisfy the financial demands of the government and the annual budgeting process, according to senior manager on VAT at Deloitte Dr Anne Bardopoulos.

Every year there is debate about whether the standard value added tax rate of 14% will be increased, but 2015 is most likely not the year, she said.

"Our prediction is that the VAT rate will not increase in this upcoming budget speech."

She said that a variety of issues would need to be considered before Nene would raise the VAT rate.

Bardopoulos said this is especially not likely before the Davis Tax Committee, which is investigating a host of tax issues, has released an interim report regarding VAT.

Watch the full interview

"Every year there is a lot of predictions over whether it will be increased or not be increased, especially as the VAT rate has remained the same for the last 20 years."

Bardopoulos said one of the primary reasons why people want to increase the VAT rate is because it is seen as an easy way to collect more tax revenue especially in light of the deficits.

However, she said it is very difficult to just go ahead and increase the VAT rate because proper studies must be done.

"What a lot of countries have been doing around the world is performing what is referred to as a VAT gap study. This assesses whether the government is collecting the VAT revenue that it is supposed to be collecting or weather there are any inefficiencies in the system from an administrative point of view."

Bardopoulos pointed out that if there are administrative inefficiencies then the state could be losing VAT that it should actually have been collecting.

"If you address the administrative inefficiencies you might be collecting that additional VAT that you would otherwise get by increasing the VAT rate."

Dual-rate system

The Davis Tax Committee, which is tasked with, among other things, the hiccups in the tax collection system, is also investigating the efficiency of VAT and whether there should be a dual-rate system introduced, said Bardopoulos.

She explained that the dual-rate system would take the form of a multi-tier VAT rate system with the objective of introducing a higher VAT to tax luxury goods.

"Now in terms of the VAT system in South Africa, we already have what is refered to as an ad valorem tax (Latin for according to value)". She said this is a tax on luxury goods.

"So if the South African system already has a procedure in place to tax luxury goods, it seems a bit nonsensical to introduce a multi-tier VAT rate system".

Bardopoulos also pointed out that SA's VAT rate is not significantly lower than the other comparable rates of other modern VAT jurisdictions. For example, the New Zealand VAT rate is 15%,  Australia 10%,  Zambia 16% and Namibia 15%.  

However, she said what should be considered when comparing the SA VAT rate to that of other jurisdictions is the fact that the SA VAT system does provide relief for certain basic necessities such as public transport, basic foodstuffs, residential accommodation and education.  "This is primarily to cater for the poor."

* Visit our Budget Special for pre-budget commentary, live streaming of the Budget speech, live post-budget analysis, Budget infographics, more Tips for Nene and much more.

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