Finance minister Enoch Godongwana is said to have told top ANC officials that he plans to increase VAT "substantially".
Godongwana is said to have made a presentation to ANC top brass in Cape Town on Monday where the decision was made.
It is said that the ANC asked the National Treasury to expand its zero-rated basket to cushion the poor. The basket is a list of basic foods that don't attract VAT.
While at least three insiders said Godongwana had received support for the tax hike, one insider said some top ANC officials opposed the proposal. However, the meeting accepted Godongwana 's presentation.
Godongwana is expected to meet DA leaders to present the final budget shortly before he appears in parliament, with a cabinet meeting planned for the same day.
This follows a Sunday Times report this week saying the finance minister is planning on increasing taxes when he announces his budget on Wednesday.
Godongwana is said to have told ANC officials, including Deputy President Paul Mashatile, secretary-general Fikile Mbalula, national chair Gwede Mantashe, the two deputy secretaries-general, Nomvula Mokonyane and Maropene Ramokgopa, that he had little room to manoeuvre when it came to making up for the revenue shortfall.
Corporate tax can’t be an option because we’ve reached the threshold and if we go above that, we will lose even more investors.
— Insider
The Sunday Times reported the government is set to squeeze more out of taxpayers to fund a projected R300bn shortfall. Discussions in the Treasury have been held about possible tax increases.
The report said all taxes could be affected — including VAT, personal income and corporate taxes. There could also be a new tax — on wealth.
Other revenue generation options include hiking the fuel levy, increasing sin taxes and possibly ending medical aid tax credits.
But all these were rejected by the officials who are said to have tentatively agreed to an increase in VAT.
“Officials agreed because they said they are giving him space to do his work ... they were not entirely happy, but they said they understood,” said an insider.
Godongwana is said to have warned that he cannot touch corporate tax as this will further alienate investors.
“Corporate tax can’t be an option because we’ve reached the threshold and if we go above that, we will lose even more investors,” said an insider.
“They then agreed that he must go ahead. They didn’t cap him. They said he should leave the fuel levy alone because that has serious implications on the economy, and we can touch VAT but still have zero-rated products to cushion the poor.”
The ANC insider said the party will now have to regroup and formulate a plan to defend and explain the decision.
“The only thing we need to do is to prepare the ANC to defend the decision and show people that we have no other choice because we had to come up with how we are going to continue funding our social spending for the poor,” said a senior government insider.
“Because right now we don’t have money for the SRD (social relief of distress grant), we have to save thousands of teaching jobs and have to increase our health spending. We have to increase the police and defence budgets because of the austerity measures that were introduced a year or two ago.”
A senior party leader said such briefings to the party officials were normal before a finance minister delivers the budget speech.
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