POLOKWANE – Value-Added Tax (VAT) is a consumption of tax charged on goods and services at each stage of production and distribution.

VAT is a crucial source of revenue for the South African government, accounting for approximately 25% of total tax revenue.

The South African Revenue Service (SARS) collects VAT on behalf of the government.

When a consumer purchases an item, the seller adds VAT to the price and then pays it to SARS.

The collected VAT is deposited into the National Revenue Fund, which is the government’s main revenue account.

The role of VAT in economic policy

According to local economist Jenny Mokhaukhau, VAT is a key component of a country’s fiscal policy, as it generates significant revenue to fund essential public goods and services.

“By levying VAT on consumption, governments can reduce income inequality, promote economic growth and support sustainable development,” she said.

VAT revenue is allocated to critical public services such as infrastructure development, including roads, bridges and airports. A portion of the revenue also goes to the Provincial Equitable Share and the Local Government Equitable Share, which fund education, healthcare, social welfare programmes, law enforcement and defence.

This includes support for schools, educational institutions, public hospitals and clinics.

Additionally, VAT revenue assists vulnerable populations, such as the elderly, people with disabilities and low-income households.

Some of the funds are also allocated to provincial governments, municipalities and state-owned enterprises.

VAT and economic growth

VAT contributes to economic growth by funding infrastructure projects, fostering entrepreneurship and supporting small businesses and local economies.

It can also influence consumer behaviour by encouraging environmentally responsible purchasing decisions.

By paying taxes, individuals contribute to societal well-being, economic growth and responsible governance.