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VAT increase cancels out fuel price decrease

Cape Town – Although the decrease in fuel prices from today will bring some relief to deeply indebted consumers, it will be short-lived as VAT will increase next month.

The Department of Energy announced last week that as from today the price of petrol will drop by 36 cents a litre and diesel by between 44 cents and 47 cents.

Neil Roets, chief executive at Debt Rescue, said while he welcomed the reduction in the price of fuel, which was largely the result of a buoyant currency and lower crude oil prices, 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 of 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 that were used by the poor to reduce their debt burden.

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

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

“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.

“Consumers have consistently notched up the unenviable reputation as having one of the highest debt ratios as a percentage of Gross Domestic Product (GDP) among emerging market economies. It’s time that we try and get rid of that perception by becoming more savings conscious, however small the monthly saving may be,” said Roets.

André Venter, the spokesperson of Uasa the union, said the decrease in fuel prices was excellent news for workers.

“The lower fuel price will offer some interim relief, albeit for a short period of time, bearing in mind that the fuel levy of 52 cents 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 there will 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,” said Venter.

Momentum Investments economist, Sanisha Packirisamy, said an increase in VATe usually affects consumers through a change in the prices of goods and services they buy and when the VAT rate increase, it is normally followed by an increase in the prices of goods and services on which VAT is levied.

“Currently, it is somewhat of an unknown as we don’t posses sufficient data to estimate the magnitude of the impact on the consumer price inflation rate. However, we think there will be a small increase in prices that will be passed onto the consumer by companies,” said Packirisamy.

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