{"id":841916,"date":"2025-11-05T07:00:00","date_gmt":"2025-11-05T05:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=841916"},"modified":"2025-11-04T16:38:18","modified_gmt":"2025-11-04T14:38:18","slug":"big-vat-changes-coming-in-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/841916\/big-vat-changes-coming-in-south-africa\/","title":{"rendered":"Big VAT changes coming in South Africa"},"content":{"rendered":"\n

South Africa is heading for a value-added tax (VAT) increase because other taxes are at their maximum, and cutting spending is politically suicidal for the ANC, leaving VAT as the only viable option. <\/p>\n\n\n\n

This is according to Efficient Wealth chief economist Dawie Roodt, who explained why a VAT increase is only a matter of time. <\/p>\n\n\n\n

Looking back at the country\u2019s tax history, Roodt noted that VAT was first introduced in 1978 at 4%. \u201cOwen Horwood, who was the finance minister at the time, said it\u2019s never going higher than 4%\u2014never, ever, ever,\u201d he said.<\/p>\n\n\n\n

\u201cWell, we know that whenever a politician says taxes are not going to increase, we must understand what they\u2019re telling us\u2014and it\u2019s not the truth.\u201d<\/p>\n\n\n\n

Roodt said VAT has steadily risen over the years, and history shows that nothing is as permanent as a temporary tax.<\/p>\n\n\n\n

Given the state\u2019s deteriorating finances, he expects further increases sooner or later. \u201cI won\u2019t be surprised if we see further increases in value-added tax,\u201d he said. <\/p>\n\n\n\n

\u201cThat\u2019s the only remaining tax that can be increased to bring in significant amounts of money. The other taxes have been pretty much exhausted.\u201d<\/p>\n\n\n\n

According to Roodt, South Africa\u2019s corporate and personal income taxes have reached their limits. <\/p>\n\n\n\n

\u201cWe\u2019re overdoing it on some of the other taxes already. Company tax at around 27% is just too high\u2014we actually need to reduce it,\u201d he said.<\/p>\n\n\n\n

\u201cAnd we can\u2019t increase income taxes anymore, because very few people pay almost all the personal income tax in South Africa. We are already over the so-called Laffer Curve.\u201d<\/p>\n\n\n\n

The Laffer Curve shows that once taxes reach a certain point, further increases actually reduce revenue because people stop working, find ways to avoid taxes, or leave the country. <\/p>\n\n\n\n

Somewhere between 0% and 100% there\u2019s a point where, if you increase tax rates more, you collect less. When it comes to personal income tax, South Africa is over that curve and simply cannot squeeze more out of the rich.<\/p>\n\n\n\n

Roodt explained that this leaves VAT. \u201cVAT is the second most important source of revenue after personal income tax, contributing roughly 30% of total tax,\u201d Roodt said. <\/p>\n\n\n\n

\u201cIt\u2019s an indirect tax and relatively easy to collect, but it\u2019s regressive\u2014poorer people end up paying a greater proportion of their income on it.\u201d<\/p>\n\n\n\n

It\u2019s not a question of if, it\u2019s a question of when<\/h2>\n\n\n
\n
\"\"<\/a>
Efficient Wealth chief economist Dawie Roodt<\/em><\/figcaption><\/figure><\/div>\n\n\n

The government almost implemented a VAT hike earlier this year. The current rate of 15% was almost 17% before it was reduced to 16%, then to 15.5%, and ultimately abandoned.<\/p>\n\n\n\n

Many political parties actually voted for an increase in VAT, and then afterwards they all claimed victory and said they had stopped it\u2014even the ANC, which proposed it in the first place.<\/p>\n\n\n\n

Roodt said this contradiction highlights a political dilemma. \u201cPoliticians never say they\u2019re going to increase taxes, but they all promise to spend more money,\u201d he said. <\/p>\n\n\n\n

\u201cIt\u2019s always left to the Minister of Finance to find the money somewhere\u2014and the only place left to find it is VAT.\u201d<\/p>\n\n\n\n

South Africa\u2019s debt, he added, has reached unsustainable levels. The state\u2019s finances have become unstable as debt levels keep going up as a percentage of GDP.<\/p>\n\n\n\n

South Africa is spending an increasing amount on interest, and we need to reduce this ratio. However, because the economy isn\u2019t growing fast enough, we can\u2019t rely on growth to solve it. <\/p>\n\n\n\n

If we continue like this, Roodt warned that the country is heading for a financial crisis. Roodt said the ideal solution is to cut spending. However, he explained that this is politically \u201csuicidal\u201d. <\/p>\n\n\n\n

\u201cPoliticians just won\u2019t do that. So the only alternative is higher taxes, and VAT is the only one left.\u201d <\/p>\n\n\n\n

He also added that the South African Revenue Service (SARS) has become more aggressive in collecting taxes to compensate for the lack of new revenue measures. <\/p>\n\n\n\n

\u201cSARS is very efficient\u2014one of the few institutions still working well. They\u2019re under huge pressure to collect as much as possible because the state finances are in trouble,\u201d he said.  <\/p>\n\n\n\n

However, every rand they take from the productive economy and give to the state is spent less efficiently.\u201d<\/p>\n\n\n\n

Roodt warned that if spending continues to outpace revenue, the government will eventually turn to inflation as a hidden tax. <\/p>\n\n\n\n

\u201cInflation erodes the value of money, and therefore debt. That\u2019s why politicians like inflation; it reduces their debt burden. But it\u2019s a tax on all of us.\u201d<\/p>\n\n\n\n

Roodt believes that without faster economic growth, South Africa will be forced into a corner. We can\u2019t keep borrowing forever. <\/p>\n\n\n\n

\u201cIf politicians don\u2019t cut spending (and they won\u2019t), the only option left is to increase VAT. Maybe not this year, but eventually. It\u2019s not a question of if, it\u2019s a question of when,\u201d he said. <\/p>\n","protected":false},"excerpt":{"rendered":"

South Africa is heading for a value-added tax (VAT) increase because other taxes are at their maximum, and cutting spending is politically suicidal for the ANC, leaving VAT as the only viable option.\u00a0<\/p>\n","protected":false},"author":92,"featured_media":812963,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[18849,853,7438],"class_list":["post-841916","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-biznews","tag-south-africa","tag-vat"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/841916","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=841916"}],"version-history":[{"count":3,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/841916\/revisions"}],"predecessor-version":[{"id":841949,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/841916\/revisions\/841949"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/812963"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=841916"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=841916"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=841916"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}