More goods to be zero-rated

Cabinet may expand the basket of zero-rated value-added tax (VAT) items after it was hiked by one percentage point in last week’s budget, the minister of communications said yesterday.

Treasury said last Wednesday VAT would be raised for the first time in 25 years as part of efforts to cut the budget deficit, stabilise debt and raise revenues for free tertiary education.

The decision to raise the tax was seen as a daring one by the government as it risked upsetting already strained relationship between the ANC and its trade union and communist party allies.

“As a response to concerns raised on the VAT increases proposed, Cabinet is also considering expanding the list of basic goods that are zero-rated on VAT,” Communications Minister Nomvula Mokonyane told a media briefing.

The move to raise VAT to 15% from 14% starting in April is expected to generate an additional R23 billion of revenue in 2018-19.

The ANC also said on Sunday that it wants to alleviate the impact on the poor of an increase in VAT by adding more zero-rated and tax-free items.

The tax increase was, however, welcomed by ratings agencies, who have raised concerns about Pretoria’s falling ability to boost revenues without resorting to excessive borrowing. But there was criticism from broad sectors of society.