Legislation: VAT increase here to stay

In the light of ‘severe constraints on the Budget and the desperate need to raise additional revenue’, the National Assembly’s Standing Committee on Finance yesterday ‘reluctantly accepted’ the 1% increase in value-added tax (VAT), reports Pam Saxby for Legalbrief Policy Watch. The increase will not be reviewed until ‘the end of the third year of its implementation, 1 April 2021, following an evaluation of … (its) impact … on revenue collection and the poor’. According to a media statement confirming this yesterday, despite ‘serious reservations’ expressed when the increase was announced in the 2018/19 Budget speech – and notwithstanding ‘almost unanimous opposition to the increase from civil society’ voiced during ‘three sets of public hearings’ – the committee arrived at its decision in the context of ‘pressures (that) have become more glaring’ following the introduction of the Medium Term Budget Policy Statement, among other things ‘unexpectedly forecasting’ a R27.4bn revenue shortfall for 2018/19, R20bn of which has been attributed to withheld VAT returns.

As Legalbrief Today has already reported, while legislation requires a VAT increase to become effective on the date announced in the Budget speech, the committee intended exploring the possibility of ‘accepting, rejecting or amending the increase in some other way’ when considering the 2018 Rates and Monetary Amounts and Amendment of Revenue Laws Bill introduced following the Medium Term Budget Policy Statement. These intentions were spelled out in a committee report on fiscal framework and revenue proposals tabled in the House in March. Against that backdrop, while welcoming the zero-rating of white bread flour, cake flour and sanitary pads, ‘as well as the decision to provide free sanitary pads to learners’, the committee nevertheless believes that more can be done to ‘cushion the effects of VAT on the poor’ by ‘reprioritising’ expenditure within prescribed limitations. With that in mind, members would like to see National Treasury considering an increase in ‘the allocation of free water and electricity to indigent households’ and the possibility of providing learners at no-fee schools with vouchers for locally produced school uniforms.

Follow Pam Saxby on Twitter (@SaxbyPam)