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The Minister of Finance Mr Enoch Godongwana has made an about turn on the VAT increase that was to take effect from 1 May 2025; he says, instead, VAT will be maintained at 15 percent.
Godongwana’s decision follows extensive consultations from political parties who expressed their concern regarding the VAT hike; the minister is also facing a court case to prevent him from increasing VAT brought on by the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF).
Minister Godongwana says by not increasing VAT, estimated revenue will fall short by around R75 billion over the medium term.
Treasury said in a statement that the Minister of Finance has written to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill, in order to propose expenditure adjustments to cover this shortfall in revenue.
Parliament will be requested to adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability.
“The decision not to increase VAT means that the measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited. To offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward,” said Treasury.
The Minister of Finance expects to introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks. The initial proposal for an increase to the VAT rate was motivated by the urgent need to restore and replenish the funding of critical frontline services that had suffered reductions necessitated by the country’s constrained fiscal position.
There are many suggestions, however some of them would create greater negative consequences for growth and employment and some of them, while worthwhile, would not provide an immediate avenue for further revenue in the short term to replace a VAT increase.
The National Treasury will, however, consider these and other proposals as potential amendments in upcoming budgets as mechanisms to increase the resources available,” continued Treasury in a statement.
