Will the VAT increase boost South Africa's financial stability or not?

For the first time in South Africa’s democratic history, Value-Added Tax (VAT) rise by one percentage point. Going from 14 percent to a terrifying 15 percent.

This follows Finance Minister Malusi Gigaba’s budget report on Wednesday, February 21. A report that many are finding a bitter pill to swallow to say the least. But what is the purpose of the increase in VAT? Why is it being increased now, after 24 years?

The increase in VAT will generate an income of approximately R22,9 billion to the government’s fiscus. The increase is set to offer a platform for free education to South Africans among other so called benefits. But what does the increase mean to us as Newcastillians?

Firstly, it is important to understand the increase in VAT is but one of the forms of taxes that will affect residents within the upcoming months. Hold onto your hats, from April 1, tax increases will include higher estate and luxury goods duties, as well as higher fuel levies. There will also be an increase in certain foods just to add insult to injury.

As horrifying as this might sound, it does come alongside government cuts over the next three years. These cuts are expected to run into billions worth of Rands, funding economic growth and social spending.

What does the next 3 years hold?

The next three years, the government will focus on social enhancement projects, which includes free higher education for people from disadvantaged backgrounds and better medical treatment.

While this might seem like a noble causes to raise taxes, one of the main reasons of the VAT increase, is due to the South African Revenue Services (SARS) recent failure. Due to SARS failing to hit tax collection targets, there was a budget shortfall of R48.2 billion. SARS claims The VAT increase will help recover the money. However, when viewing this plan and taking our Governments colourful corruption history into account, major issues begin to appear. The elephant in the room is of course…why are consumers once again paying for a poor job by Government.

With a sense of confidence, Gigaba believes the Budget plans will help the standard of living in South Africa improve drastically. Especially in terms of the free higher education. Over the next three years, R57 billion will see tertiary education become a reality for many children. This is in a country, whereby the current pass rate and the standard of education at school level is way below that of Higher education requirements. Thus, how will this possibly work?

Of this money, R12.4 billion will be available during the 2018/2019 financial year. This will fund students from households earning below R350 000 a year. Furthermore, returning students will see their loans converted into non-repayable bursaries.This will help students falling into crippling debt.

This is apparently an important step in putting an end to the cycle of poverty and unemployment among the youth.

During the State of the Nation Address, President Cyril Ramaphosa explained that through investing in tertiary education, poverty and inequality could be addressed proactively. People’s earnings can also be enhanced, as well as increase the competitiveness of our economy.