In 2018 for the first time since 1993 – the VAT was increased to 15% from the old-time 14% that we were used to since democracy. A report on Friday said Absa predicts a 1% increase ahead of the Budget speech set to be on 26 February.
“We think the government will once again rely primarily on taxes to try to narrow the deficit, and in particular, we are making the bold call of a 1% rise in the VAT rate,” said Absa.
With the rise of a percentage point, the VAT will then be 16%. The country is facing SOEs (such as Eskom, Telkom) dilemmas, loss of jobs, and cutting public sector payroll – this is most likely the reason for the expected VAT hike.
Absa expects the South African finance minister to increase the VAT to 16% and this will not be to adjust taxes for inflation, Absa said with other small tax adjustments – an additional R35-billion in tax revenue could be delivered.
In so doing, the government will then have enough money to help fund SOE companies such as our load-shedders, Eskom.
In October 2019, in the mini-budget, the finance minister announced R20.3bn (transfers to provinces) and R20.5bn (transfers to the government) cuts. SAA’s need R2-billion to continue with its services, thus an additional R20bn cut on spending is expected to be announced,
IMF has predicted a downfall in South Africa’s economic growth. Absa said that:
“We believe the scope for big cuts is limited, given that the government is in the middle of a multi-year pay deal with civil servants, which ends only in March 2021, and it has also promised not to implement any mandatory retrenchments,” according to the same report.
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