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Wed Jul 27 09:49:19 SAST 2016

Gordhan can get billions more with a VAT hike, says economist

Agency staff | 24 February, 2016 08:31
File photo.
Image by: Getty Images

If Finance Minister Pravin Gordhan increases value added tax (VAT) by just 1%, it could result in up to R20 billion more for government, according to Arthur Kamp, economist at Sanlam Investments.

However, he speculated that the minister would not announce a VAT hike in the much-anticipated budget address on Wednesday.

"If I had to guess what the minister would do then I think he wouldn't raise VAT in this round. I do think VAT is on the table for some point in future years," he told Fin24 in a studio interview.

Kamp noted that a 1% increase, depending on how calculations are done, could get the government upwards of R20 billion.

"It seems like a very quick and easy solution, but with an environment where the consumer is already struggling, it will mean less real disposable income for the consumer."

Meanwhile Old Mutual Investment Group senior economist, Johann Els, noted that a VAT hike could be on the cards, but he said the probability of this is less than 50% given that we’re currently in an election cycle.

"However, Gordhan’s newfound position of power after his reappointment as minister of finance late last year could mean that he has the means to persuade government on this," he said.

"A VAT hike would almost certainly stabilise the rand and satisfy the ratings agencies enough to avoid the looming threat of a downgrade of SA to junk status – at least in the short term."

Kamp said with an economy that is not growing, taxes would likely need to go up, adding that when collecting revenue, the efficiency of tax collection would need to be ramped up.

He noted that it is also symbolic that government wants to look at its own wasteful expenditure.

"I think in general this budget is going to surprise us in terms of its austerity."

Source: Fin24

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