CAPE TOWN - The National Treasury is facing pressure to increase revenue to fill its deficits and this could see the Finance Minister, Malusi Gigaba announcing an increase in fuel levy.
On Wednesday, Gigaba is scheduled to table the National Budget for 2018/19 financial year.
"We expect an increase in the fuel levy, but the extent of the increase will depend on whether the Value Added Tax (VAT) rate is increased," FNB said in a statement.
Chantal Marx, the head of research for FNB Securities said that, "The Mid-Term Budget Policy Statement (MTBPS) painted a very negative picture of the South African fiscus in October last year, and from an investment perspective, we will be very focused on how government plans to make up what is expected to be a significant revenue shortfall. However, the expenditure component will be equally important".
Craig Pheiffer, a chief investment strategist at Absa said, "Restructuring the way fuel is taxed could make a difference to revenue. Treasury could remove the Zero VAT rate on fuel from the 2018/19 financial year, but then it would need to consider what to do with the general fuel levy of just over R3.00 per litre. An introduction of VAT on fuel and some reduction in the fuel levy would make one of the more significant possible contributions to the fiscus.
Taxi operators have urged Gigaba to be considerate when adjusting the fuel levy.
Eugene du Plessis, the director of tax at Grant Thornton, said that an increase in VAT rate may be the easiest way for the government to find the money it so desperately needs.
The Democratic Alliance leader Mmusi Maimane said they will reject any form of tax increase from Gigaba's budget announcement, as this will hit the poorest the hardest.
In his maiden medium-term budget policy statement in October, Gigaba said the country was facing a tax revenue shortfall of R50.8bn for the 2017/18 fiscal year - the biggest since the 2009 recession. The shortfall was projected to be R69.3bn for the 2017/18 financial year and R89.4bn for 2019/20.
Sandy McGregor, a manager of the Allan Gray Bond Fund, has also agreed that raising VAT was the only viable option for Treasury.
"An increase in the VAT rate from 14% to 16% will generate an additional amount of about R48bn, which should be sufficient to stabilise the nation’s finance," Mc Gregor added.
A statement issued on behalf of the National Black Consumer Council said that an increase in VAT and fuel levy would negatively affect consumers especially the less marginalised sectors of our people. "We appeal to the Minister of Finance to stall any increases in VAT and fuel tariffs as these will have a direct effect on the cost of living and will increase the price of goods thus the consumer price index," the statement read.
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