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Vat cancels out fuel-price relief

Debt laden consumers owe R1.73 trillion

ALTHOUGH the drop in fuel prices from today will bring some relief to deeply indebted consumers, it will be short-lived, as the value-added tax (VAT) rate is set to see a price hike next month. The Department of Energy announced last week that as from today the price of petrol would drop by 36c/litre and diesel by between 44c/litre and 4Tc/litre.

Neil Roets, the chief executive of Debt Rescue, one of South Africa’s largest debt counselling companies, said yesterday that while he welcomed the reduction in the price of fuel, which was largely the result of a buoyant currency and lower crude oil price, the reality was that the majority of South Africans were facing an uphill battle every day just to put food on the table.

We know from our own research the impact that every price increase has on the overwhelming majority of South Africans, who live on the edge and who battle on a day-to-day basis to make ends meet.

While we fully understand the need by the government to generate revenue to pay for the vast array of services rendered by the state, increasing a tax like VAT, that affects the poorest of the poor disproportionally was perhaps not the best way to do it,” said Roets.

He said he hoped the government was serious about zero rating more goods and services used by the poor, to reduce their debt burden.

Reality

The harsh reality is that we at Debt Rescue are experiencing our highest growth rate ever because deeply indebted consumers are seeking relief from their crushing debts by being placed under legal debt review,” he said.

Roets said more than half of all South Africans were three months or more behind on their debt repayments, collectively owing some R1.73 trillion (latest National Credit Regulator stats).

We have gone past the point where consumers who aspire  to join the ranks of the middle class can dream of achieving that goal. The new aspiration is to put sufficient food on the table to avoid family members going to bed hungry.

South African consumers have consistently notched up the unenviable reputation as having one of the highest debt ratios as a percentage of GDP among emerging market economies. It’s time we try to get rid of that perception by becoming more savings-conscious, however small the monthly saving may be,” said Roets.

Andre Venter, spokesperson for trade union UASA, said the fuel price drop was great news for South African workers.

After the recently announced VAT increase shock, which promises to put workers at an immediate disadvantage, the lower fuel price will offer some interim relief, albeit for a short period, bearing in mind that the fuel levy of 52¢/litre will be introduced on April 1.

UASA hopes, for the sake of the workers and the poor, that there will be a ripple effect as a result, and that there will also be a reprieve in the price of products that will now be transported at lower cost, and the price of public transport, at least until the next increase in the fuel price.

South Africa’s workers and the poor must be assisted in every way to progress to a better and more affordable life,” said Venter.

Momentum Investments economist Sanisha Packirisamy said an increase in the VAT rate usually affected consumers through a change in the prices of goods and services, and when the VAT rate increased, it was normally followed by a rise in prices of goods and services on which VAT was levied.

Currently, it is somewhat unknown, as we don’t possess sufficient data to estimate the impact on the consumer price inflation rate. But we think a small increase in prices will be passed on to the consumer by companies. So, evenif the VATrate hike leads to only a small increase in the consumer price inflation rate, it will still have a negative impact,” said Packirisamy

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