‘Brace yourselves for possible VAT increase,’ says analyst

Against a background of a sluggish economy and a shrinking tax base, South Africans should brace themselves for further taxation – which could include an increase in value-added tax (VAT) – in raising the government mooted R32.8 billion to cover damage caused by the July unrest and fund the social relief grant, a political analyst warned on Thursday.

The proposed budget – discussed this week during the parliamentary select committee on appropriation’s Second Special Appropriation Bill – will also be allocated to the SA Special Risks Insurance Association (Sasria), departments of social development, police, defence and trade, industry and competition.

A portion will go towards financing efforts to combat the third wave of the Covid pandemic.

“Part of this Bill is an urgent request for R26.7 billion for the department of social development, aimed at extending the R350 social relief grant to March 2022 for the benefit of 9.4 million eligible beneficiaries,” said committee chair Dikeledi Mahlangu.

Independent political analyst Dr Ralph Mathekga said the only option available to government was raising taxes.

“Another tax hike, which could take the form of increased VAT, could be what government is looking at introducing.

This is a very huge amount being mentioned – a bill government cannot cope with from its own coffers,” he said.

University of Johannesburg associate economics professor Peter Baur said while taxation may help finance government spending, “it is usually not a zero-sum game – in other words, additional funds raised from debt can also increase spending and help to stimulate economic growth”.

He added: “While the additional grant would assist to narrow the inequality gap, households with income would struggle with the increase in tax.”