Cabinet considering expanding zero-rated VAT basket

File: The Institute of Race Relations believe South Africa's public health service is in desperate need of reform, NHI is not the answer.

File: The Institute of Race Relations believe South Africa's public health service is in desperate need of reform, NHI is not the answer.

eNCA

CAPE TOWN - Cabinet may expand the basket of zero-rated value-added tax (VAT) items after it was hiked by 1 percentage point in last week&39;s budget.

Treasury said last Wednesday VAT would be raised for the first time in 25 years as part of efforts to cut the budget deficit, stabilise 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.

WATCH: VAT, fuel levy to increase

Former finance minister Malusi Gigaba announced increases in VAT in his budget speech.

The move to raise VAT to 15 percent from 14 starting in April is expected to generate an additional R23-billion of revenue in 2018/19.

The ANC 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 welcomed by ratings agencies who have raised concerns about Pretoria&39;s falling ability to boost revenues without resorting to excessive borrowing.