VAT hike will squeeze household budgets

An increase in Value Added Tax (VAT) from 14% to 15% is the “correct approach” but will have a major impact on household budgets‚ says PricewaterhouseCoopers.

PwC was responding to the announcement by Finance Minister Malusi Gigaba in his budget speech on Wednesday.

The increase will come into effect from April 1 and is expected to raise R22-billion in additional revenue.

“This will have a major impact on households’ already tight budgets‚” PwC said.

PwC said the implementation of the VAT increase for certain businesses would also be complex‚ and the implementation date of April 1 did not leave much time to allow businesses to effect the necessary changes.

PwC said the increase in VAT was the correct approach‚ “as we see further reliance on indirect taxes”.

“This raises large amounts of revenue with relatively small increases in rates due to its broad base and economic efficiency. The effect that there is no amended list of zero-rated foodstuffs is positive as it maintains the integrity and efficiency of the South African VAT system.”