JOHANNESBURG - South Africans may have to start preparing for the possibility of an increase in the value-added tax (VAT) rate.
Economists say because of growing debt levels and the alarming budget deficit, Finance Minister Malusi Gigaba could make the announcement during his budget speech due in February.
VAT has remained unchanged at 14-percent since 1993 over concerns of the effect a hike could have on the poor.
National Treasury says some tough decisions will have to be made to stabilise debt levels.
The Medium Term Budget Policy Statement outlined a miserable picture.
The consolidated debt to GDP ratio had widened to 4,3 percent from a target of 3,1 percent.
The projected tax shortfall for 2017 was estimated at more than R50 billion, while debt-servicing costs were cited as the fastest growing expenditure item on the national balance sheet.
Accounting firm Deloitte’s Nazrien Kader said: “I think in an economy like ours where you have a low growth or no growth that’s is projected, there’s got to be some way to fund it. Tax collection is just one of them. A temporary surcharge, flat rate across the board on turnover for companies and general income for taxpayers, is probably one of the things that we’ll see.”
Economists say a possible increase in the VAT rate from 14 percent to 16 percent will generate an additional amount of about R48 billion, which should be sufficient to stabilise the nation’s finances.
At the same time, ratings agencies will be closely watching to see how funding and liquidity issues at state-owned enterprises are dealt with.
Deloitte’s Sonwabo Mateyisi said: “If at all we don’t reform the SOEs in the manner we should and they keep on relying on government and the GDP ratio goes up, we might not be able as a government, to look to other funders like the IMF. If Eskom defaults on the World Bank, that closes any opportunity for the government to go to IMF for balance of payment assistance.”
Economists say decisive action together with policy and political certainty will improve investor confidence and promote capital inflows.
This in turn will stabilise the rand and reduce the interest rate payable on new debt.