Taxes to hit food prices

SOUTH Africa today enters a new era of multiple tax increases and a fuel levy that could drive up inflation, which until now had been stabilising.

For the first time in history, consumers will face sugar and environmental taxes as well as 15% Value-added Tax (VAT) to plug a R50 billion Budget shortfall.

On Wednesday, a fuel and Road Accident Fund levy of at least 55c a litre will also come into effect.

Economists have warned that the increases could reverse the downward inflation trajectory that saw the SA Reserve Bank slash the repo rate by 25 basis points this week.

Econometrix’s Sam Rolland said the Reserve Bank had been loath to cut the repo rate, mainly because

INCREASES COULD REVERSE DOWNWARD INFLATION, WRITES

AMANDA VISSER

inflation expectations remained high.

“This is a prime opportunity to cut rates, given that inflation has continually come in lower and risks have abated,” Rolland said, adding that the recent decreases in petrol prices had helped absorb the pain.

Statistics website Trading Economics this week said the repo rate was at its lowest point in three years.

Annual core inflation, which excludes cost of food, non-alcoholic beverages, petrol and energy, decreased to 4.1% in January from 4.2% in December.

Auditing firm Pwc’s head of indirect taxes, Charles de Wet, said the interest rate cut would offer relief for households with monthly home and car repayments.

De Wet said the cost of servicing debt would ease, leaving more money in their pockets to offset the VAT rate increase.

He said the Treasury also indicated that the basket of zerorated items would be revisited to address the negative impact of the VAT increase on poorer households.

“The basket has not been revisited since 1993 and people’s eating and spending patterns have changed,” he said.

Keith Engel , of the SA Institute of Tax Professionals, said the economic situation had improved enough to offset the losses that would come as a result of tax hikes.

Engel said consumers could expect a better year overall.

“The bottom line is the policy decision (to increase the VAT rate) has been correct.”

DNA Economics chairman Elias Masilela said while the tax increases would help the fiscus, they would have a negative impact on the food basket.

“If the ratings picture we have seen unfolding is anything to go by, we are beginning to reap the dividends of this decision,” he said.

“It is part of a host of other changes that have been made recently, and collectively they are complementing each other to deliver a positive outlook for the economy.”