Accountancy firm PwC said South Africa's National Treasury may need to increase value-added tax on some goods and services to bring in new revenue.
Finance Minister Enoch Godongwana signaled in November that he would announce new tax measures to raise an additional 15 billion rand ($783 million) in the February 21 budget. The country faces soaring debt and growing spending needs, which could worsen with an election that risks the ruling African National Congress losing its national majority for the first time since coming to power in 1994.
“From a corporate tax perspective, we really don't have any room,” PwC South Africa tax policy leader Kyle Mundy told reporters on Tuesday. “And from a personal income tax standpoint, there’s really no room.”
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Mundy said that to raise R15 billion, Treasury would need to increase value added tax by 0.5% to 15.5%, adding that personal income tax has all but dried up and corporate tax has been “ineffective” in recent years. It added that it was a “stable” and “unreliable” financial source. One reason for this is that mining companies, which have traditionally enjoyed windfall profits, now face a hit to their profits from falling commodity prices, power outages and logistics disruptions.
“This will eliminate the value-added tax,” he said, but the question is “will we have the courage to raise the value-added tax rate” in an election year?
South Africa last raised the levy in 2018, when it raised it from 14% to 15% in hopes of raising revenue from a promise to spend more.
Mandy said the VAT increase could make more sense if it was linked to the popular R350 monthly Social Distress Relief Grant for the unemployed. President Cyril Ramaphosa last week promised to extend and improve benefits.
Mundy said the Treasury could adopt a model similar to the 2018 VAT hike, with then-Finance Minister Malusi Gigaba using funding for free higher education announced the year before. Said to be used as part of.
“They have an opportunity to actually tie the VAT increase in practice or to justify the VAT increase by tying it to the SRD subsidy.”
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