Vat Increase in South Africa

On the 21st of February 2018, Finance Minister Malusi Gigaba made the announcement that VAT was increasing. As of the 1st of April, VAT will increase from 14% to 15%. This will be the first increase in VAT in 25 years.

“We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards. We have not adjusted VAT since 1993, and it is low compared to some of our peers. We, therefore, decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” Gigaba said.

The real question is, who does this affect the most? Is it taxpayers? Or does this directly affect the poor, who are already suffering due to the R48-Billion hole in the fiscus which unfortunately for our pockets, needs to be filled?

Will the VAT increase help to make up the shortfall or is this government’s way of making up for it at the cost of the poor? We dig deeper at trying to understand what this means and how this will directly affect the average Joe.

VAT Increase Effects

According to pricing expert Billy Jourbert at Deloitte SA, not everything consumers spend money on will be affected. Certain items such as rent, accommodation, school fees, interest on loans and zero-rated foods will be exempt. Zero rated foods are basic items such as eggs, samp, rice, milk, brown bread, dried mealies, dairy powder blend, vegetable oil, dried beans, lentils, brown wheaten meal, mealie meal, fresh fruits, and vegetables.

Items which are not exempt from tax include your cleaning products and clothing – these are two items which affect everyone, rich or poor. VAT increase also includes water and electricity – basic needs households depend on. All these price increases are enough to make anyone worry, we suggest implementing the following:

  • Household: implement a budget for your family. This can include all your expenses, look at what you can live without and cut down on what you don’t need.
  • Leisure activities: instead of going out, consider staying in and cooking a meal as opposed to restaurants and takeout.
  • Debt: look at how you can pay back all outstanding debt, for example, pay off your credit card and consider closing it. Look at your personal loans, consider paying back more than the stipulated monthly premiums as this will reduce the number of payments you need to make.
  • Sin tax: consider cutting down on what you drink as your consumption directly affects your pocket.