Finance Minister says VAT increase was the only way to get money

Estimated reading time: 6 minute(s)

Even with the backlash from opposition parties in parliament from Members of Parliament (MPs) and the public at large, Finance Minister Enoch Godongwana insists that unfortunately there was not much they could do but to increase in order to continue funding public services.He said this is so that service delivery can continue uninterrupted.

He said these appearing before the portfolio committee in parliament discussing the budget speech he presented on March 12th, where he said that they, as treasury have decided to increase VAT by 1% from 15% to 16% which will be done in formations starting by 0.5% this year and 0.5% in the next year.

“These have to do with the government properly fulfilling its service delivery mandate. 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,” Minister of Finance Enoch Godongwana.

This is while VAT was increased 5 years ago. Political parties argued that this step is a shortcut taken by the government and there is only one group of people who are going to pay the huge prices, which are the poor and unemployed.

While other items have exempted from VAT, EFF being one of the parties opposing the increase, they said either way the increase is still going to catch up with the poor when they buy other items because people don’t live on selected items only.

They told the Minister to rather increase corporate tax, tax the rich and wealthy, and cut the cabinet. Godongwana said unfortunately this is because poor performance in our economy and they are not collecting enough on tax.

“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. Our top personal income tax rate and our personal income tax collections as a percentage of GDP are far higher than those of most developing countries. Increasing it is therefore not feasible,” he said.