CAPE TOWN, April 1 (Xinhua) -- The first value added tax (VAT) increase in 25 years took effect in South Africa on Sunday, amid concerns that the move will hurt the pockets of all consumers.
The VAT increase from 14 percent to 15 percent was announced by Minister of Finance Malusi Gigaba in February as an attempt to fill the fiscal gap of 40 billion rand (about 3.4 billion U.S. dollars).
The increase is expected to add approximately 22.9 billion rand (1.9 billion dollars) to the fiscus.
The VAT hike is central in a set of tax increases, including higher estate and luxury goods duties and an extra 52 cents per litre in fuel levies.
The tax hikes come alongside government expenditure cuts of 85 billion rand (about 7.2 billion dollars) over the next three years to fund inclusive economic growth and social spending, from free higher education to health care and social protection.
South Africa had not adjusted VAT since 1993.
The Finance Ministry says South Africa's VAT is low compared to some of its peers, therefore increasing VAT is unavoidable if the government is to maintain the integrity of its public finances.
Most economists agree that the move is arguably the most effective way of raising revenue.
Trade unions and civil society organizations are on public record opposing this option.
But Kwaku Koranteng, acting head of Absa Asset Consulting, said the increase does mean that general inflation will increase and the average consumers' pockets will be hit the hardest.
The VAT increase is not applied to basic food items.