My take on the VAT issue

OPINION - Mossel Bay Advertiser asked Dr Dennis Farrell, the managing adviser at the Business Café in George, to comment on the VAT issue:

In its simplest terms a VAT increase from 15% to 15.5% - a 0.5% percentage point increase on non-zero-rated products - would have cost the consumer an additional R5 per thousand rand spent on these products.

There would, however, not have been any change on VAT zero-rated-products which include amongst others, 19 basic food items and illuminating paraffin used primarily for cooking and lighting.

It must be said that businesses have, during the process of debilitating decision making by the government on whether the increase is going ahead or not, had to carry the related cost to change their systems to accommodate the increase.

Due to the increase being repealed it means businesses have had a double cost impact on operational readiness for VAT changes.

The question now is whether businesses are going to recoup these costs from customers through increased product costs.

Loss of revenue

It is reported that the government is projected to lose R75 billion in revenue over the medium term due to not increasing the VAT rate by 0.5%.

The impact of this on the provision of services is not clear. As taxpayers we must insist on real and tangible cutting of costs and an increase in efficiency.

There are two no-brainer areas where the government needs to cut costs - reduction in staff and the associated salary bill, inclusive of cutting back on cabinet roles with associated benefits, and secondly increased efficiency in service delivery through technology and partnering with the private sector to the level of SMMEs, to take over services from the government.

As the public we must not be fooled by the political "brownie badge" mentality of the politicians of most parties now trying to claim victory. They, the politicians, would have been the number one contender for the Sunday Times' "Mampara" award.

As the 2025/26 municipal budget process is current, it will be interesting to see how the political parties who "fought for the alleviation of cost pressures on the public" during the VAT saga are going to apply these same principals at local level as ratepayers could be facing a minimum eight to 10% increase on their cumulative account from their municipalities.

This means an increase of around 270% above the current March 2025 reported inflation rate (CPI) of 2.7%.

To put this into perspective: for every R1 000 spent on a municipal account, a 10% increase is going to cost the ratepayer R100 more."