With 1 April having finally arrived,\u00a0many South African households are concerned about the impact of the 1% increase in Value added tax (VAT) on their standard of living.<\/p>\n
Neil Thompson, head of product at African Bank, said that the 1% VAT increase on the cost of credit should be marginal, since the increase only applies to once-off initiation fee on a credit agreement and the monthly administration fee thereafter, as well as the transaction fees on transactional cards.<\/p>\n
However he cautioned that the real impact on the consumer\u00a0will depend on each and every customer\u2019s unique circumstances, how many\u00a0credit agreements or cards they hold, and\u00a0how tight their budget already is.<\/p>\n
As a result\u00a0Thompson said it is important that consumers understand what components of their credit will be impacted.<\/p>\n
“Take a credit card for example. VAT is not charged on the original capital, which is the total credit limit on the card, or the interest which is charged on the outstanding balance on the card,” he said.<\/p>\n
“Consumers do need to understand however that VAT is charged on both the initiation fee as well as the monthly service fee so there will be a slight increase here,\u201d he said.<\/p>\n
Thompson said that South Africans should also expect an increase on the following account and transaction fees:<\/p>\n
\u2022 Card replacement fees
\n\u2022 Transfer fees
\n\u2022 SMS notifications (if not free)
\n\u2022 Statement fees (if not free)
\n\u2022 Point of sale transactions (if not free)
\n\u2022 Payment fees
\n\u2022 ATM fees
\n\u2022 International transaction fees<\/p>\n
\u201cWhat this means effectively is that the more cards a person has, the more they will logically transact and therefore the bigger the impact on monthly fees and transaction fees could be,\u201d said Thompson.<\/p>\n
“When it comes to loans the capital (the loan amount) is not subject to VAT, nor is the interest which is capitalised on the loan amount for the term. But, as with credit cards, VAT is charged on the fees on a loan.<\/p>\n
\u201cSo of course the more loans a person has, the bigger the impact on monthly fees could be,\u201d he said.<\/p>\n