South Africa may raise VAT
South Africa is facing a potential credit downgrade as it continues to struggle with its budget deficit. This has lead to fresh calls for a 2% VAT rise from the current 14% to 16%.
The current VAT rate was set in 1993 following a 2% rise from 12%. In the past five years, the government has failed to close the national deficit – it has actually risen in the past two years putting the major credit agencies on alert for a credit rating downgrade. This would lead to a rise in South Africa’s borrowing costs.
Questions still remain about the impact on the poor as South African VAT is levied on all but basic foodstuffs. One strategy may be the introduction of a reduced VAT rate since there is only a standard rate and nil VAT rate.
South Africa’s 14% VAT rate is one of the lowest in Africa, where the average is close to 16%.
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