Budget 2021

Is it time to raise the VAT rate?

accreditation

Cape Town – A 2% increase in VAT could provide the cash needed to avoid fiscal slippage, says an expert.

The budget which will be delivered on February 21, will have to indicate how government plans to reduce the current deficit and reduce borrowing, especially considering tax revenues are expected to be R50bn lower than anticipated.

Tsitsi Hatendi-Matika, head retail investment specialist at ABSA’s wealth and investment management division, suggested that Treasury may have to look at adjusting VAT to provide the necessary funds.

An alternative would be to add VAT to fuel. “We anticipate that this could raise up to R18bn,” she said.

But this will increase the retail price in fuel, unless the general fuel levy is cut. “National Treasury would need to get creative around this for it to be palatable for consumers.”

Even though an increase in VAT would add a “substantial amount” to tax revenues, it will increase the tax burden across all income bands, said Investec Chief Economist Annabel Bishop. “Particularly for the poor whose expenditure on travel already makes up a very large part of their monthly expenditure,” she said.

Managing expenditure

The finance minister will have to indicate how expenses such as free tertiary education will be funded, explained Hatendi-Matika. “It is estimated that up to R60bn would be necessary to allow for free tertiary education.”

There should also be more clarity on the funding of state-owned enterprises, namely Eskom, South African Airways and the Post Office.

“Close to R35bn is required in bailouts, with Eskom taking up around R20bn of this amount.

“The SOCs (state-owned companies) have put a major strain on contingent liabilities, as the government continues to give guarantees when these entities borrow,” she said.

Hatenda-Matika noted that ratings agencies have raised concerns over contingent liabilities for SOEs. 

In a statement following the election of President Cyril Ramaphosa, ratings agency Moody’s said it would be watching how the new leadership addresses economic and fiscal challenges. S&P believes that the new leadership could implement reforms faster.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
13.78
-0.3%
Rand - Pound
19.45
-0.3%
Rand - Euro
16.70
-0.4%
Rand - Aus dollar
10.64
-0.4%
Rand - Yen
0.13
-0.2%
Gold
1,846.25
-1.7%
Silver
27.50
-1.5%
Palladium
2,753.00
-0.9%
Platinum
1,154.50
+0.3%
Brent Crude
72.69
+0.2%
Top 40
61,840
+0.6%
All Share
68,098
+0.6%
Resource 10
65,646
-0.2%
Industrial 25
88,731
+1.3%
Financial 15
13,704
+0.5%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
Have you noticed a difference in the voices of women compared to men in virtual meetings?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, there is a difference.
24% - 32 votes
No, I haven't noticed it.
65% - 85 votes
A bad internet connection worsens it.
11% - 14 votes
Vote