Finance minister Malusi Gigaba has announced that South Africa will see its first VAT rate increase for the first time in 25 years.

As of 1 April 2018, the effective VAT rate will rise from 14% to 15% adding approximately R22,9 billion to the fiscus, Gigaba said in his budget speech on Wednesday.

“In developing these tax proposals, government reviewed the potential contributions from the three major tax instruments which raise over 80% of our revenue; personal and corporate income tax and VAT,” Gigaba said.

“We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards. We have not adjusted VAT since 1993, and it is low compared to some of our peers.

“We therefore decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” he said.