#Budget2018: Banking association deems Value-Added Tax increase necessary


On the eve of the crucial Budget Speech, South Africa's second opposition party the Economic Freedom Fighters (EFF) has on Tuesday, called on President Cyril Ramaphosa to remove Finance Minister Malusi Gigaba with immediate effect or it would boycott the proceedings.

It said it was cognisant that personal income taxes have been raised in recent years and that it was not convinced that further hikes would result in substantial additional revenue.

Donations tax rate increases from 20 per cent to 25 per cent on donations of more than R30 million.

"We need not describe how critical a minister of finance is to Ramaphosa because he knows that the removal of Nhlanhla Nene and Pravin Gordan was a move to capture the public purse directly by the Gupta family".

The government of South Africa is trying to increase spending on education to benefit poorer households, but, at the same time, trying to raise more money.

Gigaba said poor households would be cushioned through a zero-rating of basic food items such as maize meal and beans. Vulnerable households will also be compensated through an above average increase in social grants.

"Some relief will be provided for lower-income individuals through an increase in the bottom three personal income tax brackets and the rebates", he added.

Raising VAT is potentially unpopular ahead of a national election next year but will generate an additional 23 billion rand ($2 billion) of revenue in 2018/19 as the economy recovers from a recession last year.

Treasury said the introduction of a tiered Value-Added Tax system would require further enforcement, more resources at the South African Revenue Service and could lead to legal uncertainty.

Moody's said it would make a ratings decision after the budget announcement.

Despite an improved outlook, government was still facing a revenue gap of R48,2 billion in the current year.

"The 2017 GDP growth projection has been revised upward to 1%, which is higher than the 0.7% expected at the time of MTBPS [Medium Term Budget Policy Statement] previous year". While inflation is down, and is expected to remain around 5.3% for 2018, the debt to gross domestic product (GDP) remains high: it is expected to stabilise at 56.2% by 2023, although that's somewhat less than the 60% anticipated in October's MTBPS. Returning students who had received financial support from the National Student Financial Aid Scheme would see their loans converted into bursaries. High income earners will also be taxed more. Gigaba said an additional amount of R57-billion has been allocated to the department of higher education and training to provide free university education, which has raised such spending to R67-billion from the adjusted allocations announced in the medium-term budget policy statement in October previous year.