South Africa Budget: Malusi Gigaba announces range of new taxes, higher VAT

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South Africans are digesting Finance Minister Malusi Gigaba's budget. He's announced a range of new and higher taxes, to help plug a 5 billion dollar shortfall in revenues. But the biggest adjustment is in the VAT rate, as Sumitra Nydoo reports.

South Africa has been struggling with low growth and declining tax revenues for some time now. It was not a complete surprise when the Minister announced a hike in various taxes. But it is the hike in the VAT rate that stood out.

MALUSI GIGABA FINANCE MINISTER OF SOUTH AFRICA "The tax proposals for the 2018 budget are designed to generate an additional R36 billion in tax revenue for 2018/19. The main tax proposals for the 2018 budget are an increase in the value added tax rate from 14% to 15%."

This will be the first increase in VAT since 1993. The tax is levied on almost all goods and services in the country. The Minister tried to allay fears around the impact this will have on the poor. South Africa has the 7th lowest tax rate in the world.

MALUSI GIGABA FINANCE MINISTER OF SOUTH AFRICA "We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances. The current zero rating of basic food items such as maize meal, brown bread, dried beans and rice will limit the impact on the poorest households."

Overall tax increases will generate just over 3 billion dollars in revenues. The 1% increase in VAT alone will rake in 2 billion dollars. The rest will come from other taxes, mostly from the wealthy. There's still a shortfall of 4 billion dollars for this financial year. The tax hikes will help to plug part of it.

SUMITRA NYDOO CAPE TOWN, SOUTH AFRICA There's also spending cuts that will save the government 8 billion dollars. While the Treasury took some tough decisions to ensure fiscal stability it didn't hold back on education. 5 billion dollars, has been set a side in the budget for free tertiary education, its now the government's largest spend. SN, CGTN, CT.