As if the increase of petrol prices and eggs wasn’t enough, talks of a Value Added Tax (VAT) increase have also started making rounds.
The last time VAT was hiked, it was 2018. Before this, VAT had been at 14% for 25 years.
VAT is the tax added to products or services at each stage of production or sale by sellers and producers.
Ever since the talks of another hike sparked this week, many say the previous increase should have been yet another sign of dire financial strains on the country’s economy.
Reason being that ever since 2018, the economy has declined further.
In this previous increase, economist Duma Gqubule says not much came out of it.
“In 2018, Malusi Gigaba (former minister of finance) announced an increase in VAT. They said that it didn't work in such a weak economy, and they didn't raise much money as they expected. So, they have been criticizing it for the past four years.”
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As a result, he believes that the country’s treasury is fearmongering more than anything if they are considering a VAT increase.
“There will be no VAT increase in this budget, that is not going to happen.
In consensus with Duma, behavioural economist Clive Mathibela also says “I don't think it's going to happen anytime soon. The reason why we are generally against the VAT increase [is that it] was just recently increased for 14 percent to 15 percent in South Africa. That, in itself is a significant 1% increment which affects all sectors of the economy.”
If anything, it is time for the real problems a hand to be dealt with.
“We'll remain stagnant and there'll be no space or room for growth. So that's my biggest concern about this VAT increase. To solve this problem, to solve the issues, you need to fix the state of the economy, not increase things so that you can make play for you to be able to collect more for the fiscus.”
“I think one of the issues that has not been discussed enough in the South African context is to re-engineer the fiscus, the way it's been designed and not let small number of taxpayers to look after the rest of the country,” he adds.
With the social relief of distress grant implement at the height of Covid-19 pandemic remaining in place, the government’s burden has grown. Since its inception in 2021, billions of rands have been injected into the grant and this is accompanied by loans taken out over the past few years.
“The SRD grant was never funded. There were no taxes for it. There were no taxes for the employment stimulus. It was just paid out of the government money,” notes Duma.
“They're just concerned with their little budgets, you know, they put little numbers. Which they knew that they wouldn't happen and now that it's become clear that their numbers that they put in the budget will happen, [they’re fearmongering],” adds Duma as he also says that there could be an additional burden coming with the introduction of a basic income grant.
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Admitting to the detriments that will come with the increments, Clive says, “VAT increments are going to be quite a tough sell to the South African consumer. We already are suffering a lot in inflationary increments that we've seen over the last 12 to 18 months. Inflation has come down quite considerably, which is part of the reason why the Reserve Bank left rates unchanged the last time they met.”
“We are not growing fast enough to create the jobs that we need to be doing so that's a big concern on our part. We can only just wait for the best and hope that the decisions that have been taken will assist to boost the economy to grow at a minimum of about four to five percent of GDP,” he adds.
As people panicked over the news of the possible VAT increase, mentions of South Africa quickly turning into a poorer country surfaced.
“People think that to get to a country like Zimbabwe, where they experience utter shutdown in the economy, is something that is far-fetched. Things like that can happen to an economy where your inflation spiral is out of control and I'm not saying South Africa will become like that, but I'm saying we've got very good neighbours around us that have shown to us that if you neglect service delivery, your duty bounds to be able to increase economic activity, that those things can happen in reality,” he tells Drum.
