CAPE TOWN: The Davis Tax Committee (DTC) has clarified that it did not explicitly recommend an increase to the South African value-added tax (VAT) rate in its first interim report on the tax, published last month.
The DTC’s interim report included proposals on the tax gap, zero rating, dual (multiple rates), exemptions, place of supply rules, and rules on e-commerce. The Committee said, contrary to some recent commentaries, its report only discussed the potential impact on the economy of raising the VAT rate.
As far as an increase to the current South African 14 percent VAT rate is concerned, the report states that it would be “somewhat inflationary in the short-run,” while an increase in personal or corporate income tax rates would be “much less inflationary.” On the other hand, a VAT rate rise would have a lesser effect on economic growth than income tax rate rises.
The report says an increase in VAT would be more regressive. “Should it be necessary to increase the standard rate of VAT,” the report concluded, “it will be important for the fiscal authorities to think carefully about compensatory mechanisms for the poor who will be adversely affected by the increase.”
