VAT hike biggest shock in budget

Finance Minister Malusi Gigaba will rely heavily on the goodwill and optimism created by President Cyril Ramaphosa to absorb any shock at the 2018-19 budget he presented in parliament yesterday.

Gigaba is hoping to raise R1.490 trillion through taxes this year while aiming to spend R1.67 trillion, leaving another estimated shortfall of R180.5 billion, or 3.6% of gross domestic product (GDP) projected at R5.8 trillion.

That’s the first blow to the pocket. The other blow relates to how he intends to do it: by a 1% rise in value-added tax (VAT), bringing it up to 15%.

Through this, Gigaba plans to get R348.1 billion.

According to National Treasury, the wealthiest 30% of households contributed 85% of VAT and how the increase will affect their spending remains to be seen.

“We have not adjusted VAT since 1993 and it is low compared to some of our peers,” Gigaba said.

“We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances.

“The current zero-rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households.”

He mitigated the pain for the lower-income brackets and the poor by raising social grants to R528.4 billion over the next three years.

Government had “taken deliberate steps to adjust social grant values above inflation to at least partially cover for the proposed increase in VAT”, he added.

Gigaba also plans to mine the working stiff for R505.8 billion this year. But some tax relief would be provided through partially adjusting the bottom three personal income brackets (earning up to R410 460 a year) and rebates for inflation.

Higher-earning individuals in the remaining four brackets (earning R410 461 or more a year) will enjoy no adjustments for inflation, allowing government to generate R6.8 billion more in personal income tax.

It’s by far the largest contributor to National Treasury’s coffers, along with VAT, corporate income tax (R231.2 billion), customs and excise duties (R97.4 billion), “other” (R84.8 billion) and fuel levies making up R77.5 billion.

There was a 52c per litre increase in fuel levies: 22c to the general fuel levy and 30c to the Road Accident Fund.

Sin taxes, always an easy target, are set to be raised between six and 10%, while estates greater than R30 million will have a full quarter ceded to the state.

Offshore investments have also not escaped the inevitability of taxes.

“The realisation of taxes from the offshore wealth of taxpayers, as highlighted in the Panama and more recently the Paradise Papers, was evidenced in the more than 2 000 applications for disclosure by South African taxpayers under last year’s Special Voluntary Disclosure Programme (SVDP),” Gigaba noted.

“By the end of March 2018, more than R3 billion will have been collected in respect of the SVDP that have been processed, with work on remaining applications continuing.”

According to Treasury, spending cuts “and other small adjustments” to large programmes and transfers to government entities will result in R85.7 billion being made available, which with other streams will go to pay for fee-free higher education.

In total, R324 billion went to higher education and training to be spent over three years, including a new allocation of R57 billion to fund free higher education.

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