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BL Premium reports that the Treasury is likely to increase social grants by above inflation, freeze the fuel levy and increase the basket of zero-rated goods to shield the poor from a probable VAT hike.
A decision by Treasury to hike VAT was apparently taken after weighing different options, including doing away with the social relief of distress (SRD) grant and taking on more debt. Both options were considered less favourable due to several reasons, including keeping ratings agencies at bay. The money expected to be collected from the VAT increase is expected to plug holes in the education, social wage and education budgets. The last time the Treasury hiked the VAT rate was in the 2018/19 budget, when it was increased from 14% to 15%. President Cyril Ramaphosa indicated last year that the government of national unity would be looking to expand the basket of essential food items exempt from VAT and undertake a comprehensive review of administered prices. Deloitte, in a budget preview, said that while expanding the VAT-free food basket might exhibit a quick-to-action response, this administrative approach might not effectively address the root causes of food insecurity. “If the National Treasury decides to expand the VAT-free essential foods list, it must carefully mitigate potential unintended consequences. Past experiences demonstrate that while the VAT-free food list might seem straightforward, its practical application can be complex. Consequently, it is crucial for the Treasury to precisely define which food items would be zero-rated and establish clear boundaries for their inclusion,” Deloitte said. It added: “The Treasury must also recognise the inherent challenges of modifying such a list. Once food items are added, there will likely be significant political and social pressure to retain them and removing items will prove difficult.”
- Read the full original of the report in the above regard by Kabelo Khumalo at BusinessLive (subscriber access only)
- Read too, ANC top brass said to support Godongwana’s plans to increase VAT, at TimesLIVE Premium (subscriber access only)
Get other news reports at the SA Labour News home page