No VAT increase for South Africa

The National Treasury has announced that Finance Minister Enoch Godongwana will introduce measures to cancel the planned 0.5 percentage point increase in South Africa’s value-added tax (VAT), initially set for implementation on 1 May 2025.

This decision follows significant resistance from political parties, economists, and the public, including legal action initiated by the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF). The DA’s challenge was heard in the Western Cape High Court earlier this week, arguing the VAT increase would impose an unjust burden on low-income households.

On 24 April 2025, the Treasury confirmed that Minister Godongwana will table the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, proposing that the VAT rate remain at 15%. This reversal comes after extensive consultations and recommendations from parliamentary committees.

Forgoing the VAT hike is expected to create a R75 billion shortfall over the medium term. To address this, the Minister has withdrawn the current Appropriation Bill and Division of Revenue Bill, pending revisions to reflect necessary expenditure adjustments in the 2025 Budget. Parliament will be asked to approve these changes to preserve fiscal sustainability.

Additionally, relief measures that were planned to cushion low-income households from the impact of the VAT increase—such as zero-rating additional food items—will also be withdrawn. These items will remain subject to the standard 15% VAT rate.

The Treasury indicated that any additional revenue collected by the South African Revenue Service (SARS) may be used to offset expenditure cuts.

Economists have backed the reversal. Dawie Roodt highlighted that SARS collected nearly R10 billion more than projected in the previous fiscal year, effectively neutralizing the need for a VAT hike. SARS reported a record gross revenue of R2.303 trillion for 2024/25, with a net collection of R1.855 trillion after refunds—R8.8 billion above revised estimates.

Former judge and tax expert Dennis Davis also criticized the proposed VAT increase, stating that Treasury could identify savings within its R2 trillion budget without resorting to higher consumption taxes.

The Finance Minister is expected to present revised appropriation and revenue bills in the coming weeks.