VAT increase, sugar tax will affect middle class and poor households- Roodt

Reading Time: < 1 minute

Economist Davie Roodt says the Value Added Tax (VAT) increase and the sugar tax will affect the middle class and poor households the most.

VAT increases by 1 percentage point to 15% on Sunday. The sugar tax  also comes into effect on Sunday.

Government is, however, considering adding more basic food items to the list of goods that will zero rated for VAT.

Roodt says these taxes will also have a negative impact on inflation numbers – which have been below the Reserve Bank’s target band of between 3% and 6%.

“It’s mostly bad news for the consumer. However, the Reserve Bank did recently cut interest rates by 25 basis points. Prices are likely to rise over the next couple of months. With VAT going up on Sunday, fuel prices going up on Wednesday and new taxes like the sugar tax being implemented also Sunday, consumers are going to feel the pinch.”

Roodt adds: “Based on my calculation the inflation rate is likely to increase by 50 basis points. And if it had not been for the relative strength of the currency, the inflation rate would have gone up a bit more.”