2nd VAT increase in 2019? Why Economists believe this could really happen

2nd VAT increase in 2019? Why Economists believe this could really happen

- Beleaguered South African consumers are facing the very real prospect of a second VAT increase early in 2019

- VAT was controversially increased by then Finance Minister Malusi Gigaba by 1% to 15% in April

- The South Africa economy has taken a beating in recent months and the government is desperately in need of finding additional revenue streams to counter slow-growth, falling tax revenue and other factors

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Economists have warned beleaguered South African consumers to prepare for the very real prospect of facing a second Value Added Tax (VAT) rate increase in the space of less than a year. The feeling from some economists is that the government will raise the VAT rate in early 2019.

VAT was controversially increased by the then Minters of Finance Malusi Gigaba in his budget speech. The 1% increase raised the VAT rate to 15% on 1 April. The increase affected virtually every sphere of South African living with prices of all items (bar a small selection of VAT exempt items) becoming more expensive.

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Bernard Sacks of Mazars, an organisation specialising in audit, accounting, tax and advisory services believes newly appointed finance Minister Tito Mboweni could announce a second VAT increase to be introduced in early 2019 during the medium-term budget speech.

Briefly.co.za gathered that Mboweni will deliver the medium-term budget speech on 24 October in Parliament. Sacks pointed out that it would be unusual, but not unheard of, for a tax-related announcement to be during the speech.

Thesouthafrican.com reported that there are various reasons why economists are expecting a VAT hike announcement all related to the poorly performing economy.

Falling tax revenue

Because South Africa is in a technical recession the government will collect less revenue through tax as consumer spending decreases. Increasing the VAT rate is one sure way to make up for the expected shortfall.

Slow growth projections

The economy is struggling and is expected to continue struggling for a while. The country’s growth forecasts have been adjusted downwards by the World Bank and currently stands at just 1%. The Reserve Bank is slightly more optimistic at 1.2%, but all of these figures make for a bleak economic outlook, which in turns hampers the government’s ability to service the needs of the people.

Policy adjustments

The medium-term budget speech is an opportunity for the government to take stock of the measures implemented during the budget speech and make adjustments accordingly.

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An increase in the VAT rate could be used to stimulate the economy if growth, spending and confidence remain low.

Economist have warned another VAT or tax increase will be a disaster for the African National Congress (ANC) led government heading into the general election next year, but the government could use zero-rated VAT items to lessen the blow to the poorest of the poor and protect its electoral advantage.

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Source: Briefly.co.za

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