CAPE TOWN - "An increase in the Value Added Tax rate may be the easiest way for the government to find the money it so desperately needs," says Eugene du Plessis, director for tax at Grant Thornton.
Du Plessis notes the National Treasury's big challenge which seems to be a continuous growing funding gap in its budget from a shrinking pool of resources.
Du Plessis said,"Given the amount of revenue that can be gained from a relatively small increase in the VAT rate, the Treasury would definitely consider this. However, the fact remains that this will hit the poorest the hardest. Given the weak economic conditions, alongside with the stubbornly high unemployment rate, the government may not be keen to consider this option".
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He said that one of the ways to soften a VAT increase on the poor is to increase the basket of VAT-exempt goods, and expanding the current basic foodstuffs.
"The other way is to introduce a dual VAT system, where luxury goods are taxed at a higher rate. This may be a good idea in theory, but practically it would be a major administrative burden for both the suppliers of goods and services, as well as SARS that will have to police the implementation of the system," the tax expert said.
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Du Plessis believes that increasing the company tax rate would also not be a preferred option for the Treasury. "Unfortunately for the wealthier, the biggest changes in the budget is probably going to affect the higher taxpayers the most, in the form of higher income taxes, as well as less relief from bracket creep," said Du Plessis.
Neil Roets, CEO of Debt Rescue said, "The next hammer blow to strike consumers will be finance minister Malusi Gigaba’s budget speech on February 21, during which he is expected to announce radical steps to plug the government’s R50-billion plus budget hole through increased taxes and possibly even a higher VAT rate".