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Cape Town - The VAT increase will contribute to the Passenger Rail Agency of South Africa’s (Prasa) cost challenges resulting in additional costs of R52m, the portfolio committee on transport heard.
Head of strategy Sipho Sithole briefed the committee on the state-owned rail company’s annual performance plan for 2018/19 on Tuesday.
The newly appointed Prasa board was excused from the meeting, chair Dikeledi Mugadzi said. The board was appointed by Transport Minister Blade Nzimande on Friday. According to Mugadzi, the board is willing to work with the committee going forward.
Acting chief financial officer Thobeka Mahlati provided information on the state of Prasa’s financial position. She explained that Prasa’s operating costs are increasing at a rate higher than the revenue generated.
In turn, revenue is declining as passengers opt to leave due to the lack of maintenance, vanadalism and theft of assets.
Earlier on Tuesday the committee heard Nzimande’s view on the new board. He expressed his shock at the fact that the safety of “working class” passengers using trains was not prioritised by the company.
The VAT increase will also be a burden for the company’s costs, Mahlati explained. Although Prasa is not subject to any primary taxes, passenger fares are subject to VAT and unlike other companies, Prasa cannot claim back tax credits.
VAT will have a “significant impact” on Prasa’s cash flows. About 40% of operational costs and 95% of capital costs are subject to VAT. The estimated operating cash shortfall for Prasa is R6.7bn over the medium term expenditure framework, or up until 2021.
Capital allocations over R40bn
Mahlati also pointed out that capital allocations for the medium term amount to R41.32bn.
Sithole explained the capital allocation indicates the work required to transform and improve the passenger rail system in terms of its infrastructure and performance.
Last year the entity did not spend all the monies allocated to it due to challenges it faced. For example, there were periods when there was no board to approve the work required. “We hope the new board can fast-track projects and implement them. It’s important for service delivery.”
Sithole said that in his three years at Prasa, he’s had to work with three CEOs, four different boards and three different ministers, which made it difficult to set up a long-term strategy.
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