Guptas partly to blame for VAT increase: report
Renowned judge and head of the Davis Tax Committee, Dennis Davis, has spoken out against the incoming VAT increase, reports BusinessDay.
Davis, who was was addressing delegates at the Small Business Indaba in Bryanston on Wednesday (14 March), said that the 1% increase in VAT could have been avoided if the government had a better grip on the Gupta family’s alleged state capture and billions of rand in runaway fruitless and wasteful expenditure.
“Ask yourself, would we really have needed to collect R20 billion in VAT if we, even to a small extent, reduced corruption? To put up VAT … is difficult.”
“The auditor-general’s office had also highlighted unauthorised expenditure amounting to R60 billion – R80 billion in the public sector.
“If we cut that down by 25% … if we said, ‘Okay, we’ll give you R40 billion to waste and we’ll save R20 billion’, we wouldn’t have had to increase VAT,” he said.
As of 1 April 2018, the effective VAT rate will rise from 14% to 15% adding approximately R22.9 billion to the fiscus.
“In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments which raise over 80% of our revenue; personal and corporate income tax and VAT,” Gigaba said during his budget speech in February.
“We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards. We have not adjusted VAT since 1993, and it is low compared to some of our peers.
“We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” he said.
Inflation
Speaking on Tuesday (13 March), Brian Kahn, one of the Reserve Bank’s top policymakers said that the central bank expects the hike in VAT to lift inflation by around 0.6 percentage points over the coming year, though it doesn’t expect to raise interest rates in response.
“With inflation targeting, you try and look through exogenous shocks, particularly temporary ones and this is a one off,” Kahn told Reuters on the sidelines of investor meetings in London.
“There may be a few second round effects, it may affect wage increases in the following years, so we expect a moderate, very small increase in the following year as a result of that.”
“But it is something that we would not react to by raising rates and we would certainly try and look through it,” he said.
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