The lesson is starkly simple: When the President of the United States embarked on his plan to increase tariffs the markets around the world plunged as nervous investors withdrew their investments.
Now the South African VAT hike of 0.5% may not seem as extreme as Trumps Tariff Hikes but, once implemented. will be much harder to back pedal on than when Trump back pedaled.
When (If )the VAT hike is implemented South Africa can expect some difficult times as we adjust – there will be no going back!
There is one thing about VAT that I grapple with – VAT is levied at every state of the sales process on businesses trading over R1 Million per annum.
What gets me is that VAT is an output / input tax that is levied on every business in the value chain. VAT Charged – VAT Paid = VAT Owed to SARS.
So if one gets a ‘widget’ and sells that on to a wholesaler there is VAT levied as that ‘widget’ goes up the value chain. Often VAT will need to be levied at production, wholesale, retail and consumer.
The theory is then that the government will get a bite of the cherry at each stage and as each increases in value up the chain.
Take the 0.5% increase – it will affect every stage and most sellers will ROUND UP sales prices (never DOWN). What many have no grasp on is just how much that simple round up will negatively affect consumers.
From a government perspective it would be more beneficial the more sales exchange points a product has as the collection of VAT will increase the higher you go up and along the chain.
