"There are several persistent spending pressures in health, education, transport and security. These have to do with the government properly fulfilling its service delivery mandate," said Godongwana.
"After careful consideration, the government has decided to fund these. Deferring the funding of these sectors further would compromise the government’s ability to meet its constitutional obligations to the people. To raise the revenue needed, the government proposes to increase the VAT rate by half-a- percentage point in 2025/2026, and by another half-a-percentage point in the following year.
"Government also proposes no inflationary adjustments to personal income tax brackets, rebates and medical tax credits. These measures will raise R28bn in additional revenue in 2025/2026 and R14.5bn in 2026/2027."
He said the decision on increasing VAT, which led to the budget speech being postponed in February, was not "taken lightly" due to disagreements among members of the government of national unity on the initial proposed increment of 2-percentage-points to the VAT.
"No minister of finance is ever happy to increase taxes. We are aware of the fact that a lower overall burden of tax can help to increase investment and job creation and also unlock household spending power. We have, however, had to balance this knowledge against the very real, and pressing, service delivery needs that are vital to our developmental goals and which cannot be further postponed," Godongwana said.
He said alternatives to raising the VAT rate were thoroughly considered.
"We weighed up the policy trade-offs involved, including increases to corporate and personal income taxes. Increasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth, he said.
"Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs. Furthermore, South Africa’s corporate income tax collections are already higher than most of our peer countries. On the other hand, an increase to the personal income tax rate would reduce taxpayers’ incentives to work and save."
SowetanLIVE
Godongwana hikes VAT rate by half-a-percentage point
Image: Supplied
Government will increase VAT to 16% by the 2026/2027 financial year, finance minister Enoch Godongwana announced during his budget speech on Wednesday.
This means 0.5 percentage points increase will be implemented in the 2025/2026 and 2026/2027 financial years.
"There are several persistent spending pressures in health, education, transport and security. These have to do with the government properly fulfilling its service delivery mandate," said Godongwana.
"After careful consideration, the government has decided to fund these. Deferring the funding of these sectors further would compromise the government’s ability to meet its constitutional obligations to the people. To raise the revenue needed, the government proposes to increase the VAT rate by half-a- percentage point in 2025/2026, and by another half-a-percentage point in the following year.
"Government also proposes no inflationary adjustments to personal income tax brackets, rebates and medical tax credits. These measures will raise R28bn in additional revenue in 2025/2026 and R14.5bn in 2026/2027."
He said the decision on increasing VAT, which led to the budget speech being postponed in February, was not "taken lightly" due to disagreements among members of the government of national unity on the initial proposed increment of 2-percentage-points to the VAT.
"No minister of finance is ever happy to increase taxes. We are aware of the fact that a lower overall burden of tax can help to increase investment and job creation and also unlock household spending power. We have, however, had to balance this knowledge against the very real, and pressing, service delivery needs that are vital to our developmental goals and which cannot be further postponed," Godongwana said.
He said alternatives to raising the VAT rate were thoroughly considered.
"We weighed up the policy trade-offs involved, including increases to corporate and personal income taxes. Increasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth, he said.
"Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs. Furthermore, South Africa’s corporate income tax collections are already higher than most of our peer countries. On the other hand, an increase to the personal income tax rate would reduce taxpayers’ incentives to work and save."
SowetanLIVE
Would you like to comment on this article?
Register (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Trending
Latest Videos