Facing a Budget deficit of R48 billion, the Finance Ministry had little choice but to raise the Vat rate – a move that will have an enormous impact on all South Africans, particularly the poor.

Raising the Vat rate is just one of a number of tax proposals tabled by the ministry that is projected to generate an additional R36 billion in tax revenue for the 2018/2019 financial year.

“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.

“The current zero-rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households. Vulnerable households will also be compensated through an above average increase in social grants.”

Reacting to the announcement, PwC Vat partner Lesley O’Connell said that while the increase would impact all consumers, it was the appropriate approach.

“This will result in additional costs for consumers as they will now have to pay an additional Vat on any purchases of goods or services from Vat vendors. This will have a major impact on households’ already tight budget. The implementation of the Vat increase for certain business will also be complex, and the implementation date of 1 April does not leave much time to allow businesses to effect the necessary system changes and enhancements,” O’Connell said.

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“This is the correct approach as we see further reliance on indirect taxes.  This raises large amounts of revenue with relatively small increases in rates due to its broad base and economic efficiency.  The effect that there is no amended list of zero rated foodstuffs is positive as it maintains the integrity and efficiency of the South African Vat system.”

Personal income

Gigaba also announced “a below inflation increase in the personal income tax rebates and brackets”, but he said lower income tax brackets would receive greater tax relief.

“Some relief will be provided for lower income individuals through an increase in the bottom three personal income tax brackets and the rebates,” he said.

Once again the country’s wealthy will be hit hard with a higher estate duty tax rate of 25% for estates valued at more than R30 million.

The tax on luxury goods will increase between 7% and 9%.

Sin tax

If you’re a smoker or a regular drinker, your drinking sessions are about to cost you more.

Gigaba announced an increase in the alcohol and tobacco excise duties of 6%-10%.

Fuel levy

Motorists will be paying more at the pumps courtesy of a fuel levy hike by 52c per litre, of which 22c will be allocated to the general fuel levy and 30c allocated to the Road Accident Fund levy.

READ MORE: What to expect from the 2018 Budget Speech

“Taken together, we believe these proposals best protect the progressive nature of our tax regime, to minimise the impact on lower-income households,” Gigaba said.

Carbon tax

Gigaba also announced that Parliament was currently considering a draft Carbon Tax Bill, with this tax expected to be implemented from 1 January 2019.

“As with greenhouse emissions, the polluter-must-pay-principle must also apply to other activities which harm the environment, like the dumping of plastics into our oceans and threatening of marine life,” he said.

“Working with the Department of Environmental Affairs, we will shortly publish a policy brief to broaden the scope of environmental fiscal reform, to explore fiscal and regulatory measures to improve water resource management, mitigate the emission of pollutants and encourage recycling to reduce waste, such as plastic, which is polluting our oceans.”