Finance Minister Pravin Gordhan. (File, AFP) ~ AFP
Cape Town – An increase in value-added tax (VAT) was considered when government was drafting the 2017 Budget Review, said Finance Minister Pravin Gordhan on Thursday.
Speaking at a breakfast show hosted by SABC the morning after he delivered his Budget Speech, Gordhan was asked by a member of the audience why government hadn’t opted for a 1% or 2% hike in VAT.
Gordhan responded by saying that VAT is a “regressive tax”, which has a negative effect on poor people. “It was considered by the Davis Tax Committee, which was tasked with looking at the entire tax administration system in South Africa.
“But we must start having this conversation. It is on the table, although there will be exemptions.”
Gordhan said VAT is a difficult tax to administer and there are proposals to levy different VAT rates for specific items. “For example, a 20% VAT on luxury items and the current VAT rate on frequently used consumables.”
WATCH:Gordhan explains why there was no VAT increase in his budget
In his Budget Speech on Wednesday, Gordhan said VAT collection decreased by R11.3bn in the previous financial year.
Although the decline in import VAT was partially offset by strong domestic VAT collection, VAT refunds were higher than anticipated which reduced the net VAT revenue.
READ: Gordhan on tax: All South Africans must pay their fair share
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