Fin24 reports that as SA struggles with SOEs on the brink of collapse, below-target revenue collection and reluctance to cut the public sector payroll, Absa believes that government is likely to announce a VAT increase to 16% during the national budget speech next month.  

In its economic forecast ahead of the 2020 budget to be presented on 26 February, the financial services group said:  “We think the government will once again rely primarily on taxes to try to narrow the deficit, and in particular, we are making the bold call of a 1 [percentage point] rise in the VAT rate.”  The bank expects the finance minister to increase VAT to 16% and to not adjust taxes for inflation like Treasury did last year, which saw people paying more taxes even when their salary increases did not match inflation.  “We believe the scope for big cuts is limited, given that the government is in the middle of a multi-year pay deal with civil servants, which ends only in March 2021, and it has also promised not to implement any mandatory retrenchments,” Absa opined.  In 2018, SA saw a VAT hike to 15% from the 14% which had been in place since 1993.

• Read the full original of the report in the above regard by Phumi Ramalepe at Fin24

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