Minister of communications on Thursday reveals that South Africa’s cabinet may expand the basket of zero-rated value-added tax (VAT) items after it was hiked by 1 percentage point in last week’s budget, the
Treasury said last Wednesday VAT would be raised for the first time in 25 years as part of efforts to cut the budget deficit, stabilize debt and raise revenues for free tertiary education. The decision to raise the tax was seen a daring one by the government as it risked upsetting already strained relationship between the ruling African National Congress (ANC) and its trade union and communist party allies.
“As a response to concerns raised on the VAT tax increases proposed, cabinet is also considering expanding the list of basic goods that are zero-rated on VAT,” communications minister Nomvula Mokonyane told a media briefing.
The move to raise VAT to 15 percent from 14 starting in April is expected to generate an additional 23 billion rand ($2 billion) of revenue in 2018/19.
The ANC also said on Sunday that it wants to alleviate the impact on the poor of an increase in value-added tax by adding more zero-rated and tax-free items.
The tax increase was however welcomed by ratings agencies who have raised concerns about Pretoria’s falling ability to boost revenues without resorting to excessive borrowing, criticism has come from broad sectors of society.