JOHANNESBURG, Feb. 21 (Xinhua) -- South African Finance Minister Malusi Gigaba announced the much-dreaded increase in value-added tax (VAT) during his 2018/19 maiden budget speech on Wednesday. It's the first such hike in more than two decades.
The minister announced a one percentage points increase in VAT from 14 percent to 15 percent. The move to hike VAT and a plethora of other tax proposals were meant to generate an additional R36 billion (3.09 billion U.S. dollars) in tax revenue, said the minister.
The South Africa government is saddled with a staggering R48.2 billion (4.1 billion dollars) revenue gap, which many economic experts predicted that the minister's increasing of VAT was unavoidable.
Standard Bank economist Elna Moolman was cautious ahead of the budget. Moolman told Xinhua on Wednesday that VAT was a positive idea but the increase "would not be taken lightly by the poor ahead of the elections in 2019."
"We have not adjusted VAT since 1993, and it is low compared to some of our peers. We, therefore, decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances," Gigaba said.
However, Gigaba announced that zero-rating on basic food items including maize meal, brown bread, dried beans and rice will remain in place.
South Africa opposition, Democratic Alliance (DA), disagreed with him that the Zero-rating food will provide relief to the poor. The DA disapproved the increase of VAT by one percentage points, saying this will impact the most vulnerable.
"The South African poor is indirectly forced to pay for the errors of the last nine years," Mmusi Maimane, leader of DA said.
In additional to VAT, Gigaba announced a 52 cents per liter increase in the levies on fuel.
However, the old age, disability and care dependency had an early Christmas. Their grants will increase on April 1st from R1,600 (137.1 dollars) to R1,690 (144.8 dollars) while the Child Support grant will increase from the baseline of R380 (32.6 dollars) to R410 (35.1 dollars).
The minister expected the country's economic growth at 1.5 percent in 2018, rising to 2.1 percent in 2020.