VAT hike worries raised in Parliament

Concern about the effects of the latest proposed amendments to the Value Added Tax (VAT) Act has been raised in submissions to Parliament.

While the value-added tax (VAT) increase in April is expected to drive up inflation, producers are not expected to feel it as much as consumers.

Inflation has surprised on the downside in recent months. The producer price index (PPI) decelerated to 3.7% in March from 4.2% in February while the consumer price index (CPI) fell to its lowest level in seven years, to 3.8% from 4% in February.

Consumer inflation is likely to be the bottom of the current inflation cycle, said Investec economist Lara Hodes.

“Price pressures will intensify in April, following a lift in the petrol and diesel price, accompanied by the addition of the fuel and road accident fund levies as stipulated.”

Nedbank chief economist Dennis Dykes said: “The increase in VAT should not have the same effect on producer inflation that it would on consumer inflation, so producer prices will remain relatively contained.”

Most of the VAT cost is passed through to the consumer at a price level that accumulates, and then the retailer is responsible for the cost, he said.

Steel and Engineering Industries Federation of SA chief economist Michael Ade, however, said the declining trend in PPI for intermediate manufactured goods did not augur well for domestic producers.

NKC economist Elize Kruger said: “Hefty fuel price increases in April and May due to the fuel levy increases, the recent upward pressure on global oil prices and a somewhat weaker rand exchange rate will exert upward pressure on producer inflation in coming months.”