Finance minister Malusi Gigaba has announced that South Africa will see its first VAT increase in 25 years.
From 1 April 2018, the VAT rate will rise from 14% to 15%, said Gigaba.
“We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards,” he said.
Gigaba said South Africa has not adjusted VAT since 1993, however, and it was low compared to the country’s peers.
“We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances.”
Analysts believe that despite a VAT increase being necessary, its effect will be felt by lower-income South African households the most.
Gigaba said the current zero-rating of basic food items such as maize meal, brown bread, dried beans, and rice will limit the impact on these households.
“In addition, vulnerable households will also be compensated through an above-average increase in social grants,” he said.
“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.