The discussion around a possible hike in the VAT (value added tax) rate from 14% to 17% has created negative public reviews. Following on from the work done by the Davis Committee in July 2015; the Mancosa [GSB] Business Nexus Unit was pleased to host four well versed tax professionals to provide a better understanding of the South African government’s approach to raise the VAT rate over the next year, as opposed to raising individual tax or company tax rates.
The evening’s guest speakers included Mr. Paul Gering, Tax Director – PKF; Professor Matthew Lester, representative of the Davis Tax Committee; Professor Dilip Garach, (Chartered Accountant South Africa) and Owner of Garach and Garach Consulting firm and Advocate Lavan Gopaul, Head of MANCOSA Business Nexus Unit.
Guest speakers highlighted the main reason for the proposed VAT rate increase by the government and possible alternatives to supplement the current economic deficit. VAT has long been a strong revenue contributor toward the South African economy, statistics suggest that VAT accounts for R284 billion or approximately 27% of revenue after individual tax at 35% and corporate tax. With an increase of the VAT rate to 17%, an additional R60 billion in revenue could be generated. A possible alternative suggested by the speakers in order for the South African Government to collect the same value of R60 billion in revenue, was to increase current individual tax rates by 6% and corporate income taxes by an additional 5%.
In concluding the evening, it was noted that a rise in the VAT rate will evidently leave many South Africans feeling the pinch in their pockets. South African consumers experience basic hikes in food and fuel prices at a rate much higher than basic company wage rates. The change in this broad consumer tax may be an enormous burden on the interest rates result in a large number of job losses.
With significant community interest on the effects of the proposed VAT rate increase, the panel of speakers opened the floor to the audience to engage in a Q & A session, resulting in topics for the next Business Nexus Unit’s discussion.