Cabinet Is Said To Back 0.5 Percentage Point Vat Hike

Treasury is likely to opt for a smaller, 0.5 percentage point hike in a rescheduled budget to be presented on Wednesday, compared with its initially proposed two percentage point increase, according to two of the people, who asked not to be identified as the information isn't public.

That option would resolve an impasse within the coalition government over the planned VAT hike that caused an unprecedented postponement of the budget last month. The original proposal to lift the VAT rate to 17 would have raised R191-billion over the next three fiscal years.

The go-ahead to raise the VAT rate is conditional on national treasury making headway on critical issues including fixing the nation's ailing ports and undertaking a spending review, the people said. South Africa wants to boost economic growth and invest in frayed infrastructure while also controlling borrowing, limiting its options.

Among other options available to treasury to boost revenue are lifting taxes on alcohol and the fuel levy, the people said. The smaller VAT increase would also mean treasury would have to cut back on spending plans proposed last month, which included an additional allocation of R46.7-billion to fix South Africa's frayed infrastructure, they said.