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South Africa May Need to Hike Value-Added Tax in Next Budget, PwC Says

(Bloomberg) -- South Africa’s National Treasury may have to hike value-added tax on some goods and services to bring in new revenues, accounting firm PwC said.

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Finance Minister Enoch Godongwana in November signaled that he would announce new tax measures to raise an additional 15 billion rand ($783 million) in his Feb. 21 budget. The country is facing spiraling debt and growing spending needs that may be exacerbated by elections in which the ruling African National Congress risks losing its national majority for the first time since it took power in 1994.

“We really don’t have scope from a corporate income tax point of view,” Kyle Mandy, PwC South Africa tax policy leader told reporters Tuesday. “Nor do we really have scope from a personal income tax perspective.”

To raise the 15 billion rand, Treasury would have to increase VAT by 0.5% to 15.5%, Mandy said, adding that personal income tax has largely been exhausted and corporate taxes in recent years have been a “volatile” and “unreliable” revenue source. That’s in part due to mining companies, which have contributed to previous windfalls, facing a knock to their profits from lower commodity prices, power cuts and logistics snarl-ups.

“That leaves VAT,” he said, but the question is “are they brave enough to go and raise the VAT rate” in an election year.

The last time South Africa ratcheted up the levy was in 2018, when it hiked it to 15% from 14%, with the expectation of boosting revenues following hefty spending commitments.

A VAT increase could be made more palatable if it is tied to a popular 350 rand monthly social relief of distress grant for the unemployed, said Mandy. President Cyril Ramaphosa last week pledged to extend and improve the stipend.

Treasury could employ a model similar to the VAT increases of 2018, which then Finance Minister Malusi Gigaba said would be used in part to fund free higher education announced the prior year, Mandy said.

“They actually have an opportunity to actually link a VAT increase or justify a VAT increase by linking that to the SRD grant.”

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