A consideration of the possible withdrawal of the VAT zero rating on fuel in South Africa
Mavetera, Kudzai Rejoice
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South Africa faces various economic and socio-economic challenges. One such challenge is the rising debt service costs and the fiscal budget deficit. The budget deficit arises as a result of government expenditure exceeding government revenue. The government spends on different items to meet the public’s needs. Examples of such expenditure include health, education, social grants and the maintenance and upgrade of the infrastructure. Government collects revenue from different taxes: personal income tax, corporate tax, estate duty and Value Added Tax. Currently South Africa’s VAT is levied at 15%. This was increased by government as an avenue to collect more revenue. However, this did not solve all the government’s problems of a budget deficit. This means the government needs more avenues to collect revenue. One avenue which was proposed is the withdrawal of the zero rating on the VAT on fuel. Currently, fuel is levied at zero percent in South Africa. Fuel is also subject to fuel levies. Other countries have repealed their VAT zero rating on fuel, with fuel being levied at either zero rate or exempted. Other countries have introduced VAT for the first time and subsequently introduced VAT on fuel. Previous research has indicated that South Africa learns from the experience of other countries and adapts similar approaches in different fields. The purpose of this study was, therefore, to perform a comparative analysis from a policy perspective of the current and proposed VAT on fuel in South Africa with the A consideration of the possible withdrawal of the VAT zero rating on fuel in South Africa. VAT on fuel in Kenya, the United Kingdom and Dubai. This study reviewed past research and literature concerning the different countries’ policies on VAT on fuel. The study found that in light of the prevailing fuel levy in South Africa, an additional VAT would put pressure on the average individual and the economy. This is derived from the conclusions performed on the countries where there was an increased burden on the taxpayer and economy as well as adverse effects on other factors such as administration of the tax and the effects on other taxes. Recommendations were made on how the government could use the withdrawal of the VAT zero rating as avenue strategy to increase government revenue while taking into consideration different factors relevant in the implementation of VAT system. The study therefore contributes to current knowledge by recommending how the government could approach the withdrawal of the VAT zero rating on fuel in South Africa.