Finance Minister says VAT hike still on the table

Finance Minister Godongwana said that, even though he did not raise taxes in the 2024 Budget, value-added tax (VAT) hikes are not off the table.

Gorgonwana tabled the 2024 Budget on 21 February, where many South Africans were relieved to hear that the government did not increase any major taxes.

After personal and corporate income tax, VAT is the government’s largest source of revenue. VAT is expected to bring in R476.7 billion in taxes in the 2024/25 financial year.

The VAT rate has only been raised once in democratic South Africa, when it was hiked from 14% to 15% in 2018.

However, many people believed the Treasury would turn to VAT hikes to raise additional revenue in 2024, as the government reported a massive R347 billion deficit for 2023.

Godongwana signalled in November last year that he would announce new tax measures to raise an additional R15 billion in his February budget.

Therefore, before the 2024 Budget, many experts believed these new tax measures would be VAT increases.

“We don’t have scope from a corporate income tax point of view,” Kyle Mandy, PwC South Africa tax policy leader, said. “Nor do we have scope from a personal income tax perspective.”

Mandy said that to raise the R15 billion, the Treasury would have to increase VAT by 0.5% to 15.5%. She added that personal income tax has largely been exhausted, and corporate taxes have been a “volatile” and “unreliable” revenue source in recent years.

However, the Treasury ultimately decided not to adjust income tax brackets for inflation and dipped into the Reserve Bank’s Gold and Foreign Exchange Contingency Reserve Account.

This will give the Treasure more income without raising taxes, which could have risked increased non-compliance from South Africa’s already small tax base.

However, Godongwana told SABC News that raising VAT is not off the table.

“It’s too early to make that judgment call because I’ve just tabled the Budget two weeks ago, and I did not increase VAT – but I’m not saying it’s not on the table,” he said.

The minister said it depends on the nature of demands on the fiscus and the availability of resources.

“For instance, the SARS Commissioner informed me that if we give him more resources, he would get us more revenue by effective compliance,” he said. “It may well be that if we achieve that objective, there’s no need for tax increases.” 

However, he said if major changes like a basic income grant or National Health Insurance are implemented, tax hikes may be necessary to fund them.

“Let’s assume, for instance, that the government wants to implement a basic income grant in 2025. That basic income grant must be funded one way or the other,” he explained.

“So, I’m not ruling that out, but it’s not on my radar screen for now.”