VAT, fuel and sin – and how Mboweni might find the money the country so desperately needs

The AA and some economists believe finance minister Tito Mboweni may announce an increase in VAT and fuel levies when he delivers his budget speech on Wedensday.

Just where will the finance minister find the extra money SA so badly needs?

We know you need the money, the Automobile Association said to finance minister Tito Mboweni this week, but don’t grab it from fuel taxes.

This was among the pleas put forward from the AA to the finance minister ahead of the annual budget speech scheduled for Wednesday.

While it acknowledges Mboweni faces the difficult task of easing the country’s financial burden and ensuring there is money going to government, the AA said any increase in the fuel levy and value added tax (VAT) – which many economists predict we’re likely to see – would will be detrimental and “catastrophic” for SA.

“The minister will have to walk a trickier fiscal tightrope than many of his predecessors, and he will undoubtedly be seeking relief from different quarters to ease the country’s financial burden,” the AA said.

“This places him in a tough position where he will have to meet the needs of the country while at the same time ensuring there is enough money coming into government coffers to satisfy demand.”

The association, however, contends that it would be a dangerous and damaging tactic, especially for the poor, if government turned to fuel levies as a further source of revenue.

“Previous years have seen higher than inflation increases to the fuel levies – the general fuel levy, the Road Accident Fund levy, customs and excise taxes and the carbon tax. However, given the fact that many South Africans are buckling under severe financial constraints, such an increase this year will be more than detrimental – it could be catastrophic,” the association said.

According to the AA, the two major taxes – the general fuel and Road Accident Fund levies – comprise around 40% of the price of every litre of fuel sold in SA.

“We have seen in the past that any increases to the fuel levies is met with a swift increase in public transport fares,  including those of taxis. While a slight increase, even one in line with inflation, may not seem drastic, it has an enormous impact on the lives of consumers who rely on every cent to make it to the end of each month. These increases are therefore extremely harmful to the majority of citizens and should be considered an absolute last resort by the finance minister,” said the AA.

It added: “In addition the AA says any proposed increase to the rate of VAT along with an increase to the fuel levies will be a double blow for consumers and the motor industry as a whole, one many will not be able to cope with.”

Economist Dawie Roodt believes a VAT increase of one percentage point is possible, along with increases in other taxes.

“I think Mboweni will introduce a new tax rate for the super-wealthy. Another might be VAT, but that’s very difficult to do politically. Other taxes that I think he will increase are the fuel levy and sin taxes,” Roodt said.

Six taxes refer, largely, to levies charged on alcohol, cigarettes and similar products.

However, other economists don’t necessarily agree, although they say Mboweni faces a difficult task given the country’s financial position.

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