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The Davis Committee’s VAT report unpacked

Monday, 13 July 2015   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (Moneyweb)

The Davis Tax Committee’s first interim report on Value Added Tax (VAT) opens the door for a possible increase in the standard VAT rate. The rate has been applied at 14% since 1993.

The report refers to a 3 percentage point increase to 17% as an example.

The debate on an increase in the VAT rate has been shunned for many years, mainly because of the political hot potato created by trade unions who insist it will harm the poorest of the poor the most.

However, the Davis Tax Committee found that from a "purely macro-economic standpoint” an increase in the VAT rate will be less distortionary than a rise in the personal income tax or corporate income tax rates..

The Davis committee was appointed by former Finance Minister Pravin Gordhan to assess the tax policy framework, and its role in supporting the objectives of growth, employment, development and fiscal sustainability.

The Davis report points out that VAT has accounted for approximately a quarter of the total tax revenue in the last couple of years. It amounted to 25.6% in 2011-’12, 26.9% in 2012-’13 and an estimated 27.8% in 2014-’15.

For government to generate an additional R45bn it will have to either increase the VAT rate by 3 percentage points, the personal income tax rate by 6.1 percentage points or the corporate income tax rate by 5.2 percentage points.

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