South Africa is continuing to struggle with its budget deficit, this means it is facing a potential credit downgrade, meaning a rise in South Africa’s borrowing costs, leading to calls for a 2% increase in VAT rate from its current 14% to 16%, a one-percentage point increase in VAT could contribute in excess of R16 billion to government revenue annually.
The VAT rate has not increased since 1993, when it saw a 2% increase, which means its tax rate is lower than the average for Africa with the average standard rate of VAT across 28 African countries is 16.2%, while in the European Union it’s 21.5%. Meaning the increase would bring it in line with the African average. This non movement in VAT rates could be one of the reasons that ministers have failed to close the national deficit and have in fact even seen an increase in recent years.
On the other hand as South Africa impose their VAT on all but basic food stuffs many experts have questioned the impact on the poor, meaning they could also look at introducing a reduced rate, as they currently only have a standard and zero percent rates, to impose on more food stuffs.