South Africa will increase value added tax (VAT) for the first time in over two decades, the Treasury said on Wednesday.
The Finance Minister, Malusi Gigaba, said while presenting the budget plan before parliament that VAT would increase to 15 per cent from 14 per cent effective April 1.
VAT had remained unchanged since 1993.
â€œThis is a tough, but hopeful budget,â€ Gigaba said.
â€œWe decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances.â€
A VAT hike ran the risk of adding a heavy financial burden on the poor, but Gigaba said poor households would be cushioned through a zero-rating of basic food items such as maize meal and beans.
The Treasury said the budget deficit was seen narrowing to 3.5 per cent of gross domestic product (GDP) by 2020 from 4.3 per cent in the 2017/18 fiscal year.
Expert said the increase was President Cyril Ramaphosaâ€™s government aim to cut the budget deficit and stabilise debt after years of slow economic growth.
Ramaphosa took over as leader of South Africa last week after Jacob Zuma stepped down on orders of the ruling African National Congress, bringing to an end nine years of corruption scandals and economic mismanagement.
Zuma has denied all wrongdoing.
The rand extended gains to 0.81 per cent against the dollar, government bonds firmed, while retail shares on the stock exchange due to the new three years budget outlay.