Finance Minister Enoch Godongwana recently delivered the 2025 Budget speech, making a significant announcement regarding the Value-Added Tax (VAT) rate. The treasury confirmed that the VAT rate will remain at 15%, putting an end to the speculation of an imminent increase in the tax rate.
The decision to maintain the VAT rate comes after a heated political battle over the proposed hike. Initially, Minister Godongwana had planned to implement a 0.5 percentage point increase on 1 May, followed by another hike of the same margin on April 1 next year. However, in a surprising turn of events, the minister introduced legislation to reverse this decision and keep the VAT rate unchanged.
The official announcement by the treasury came shortly after the Democratic Alliance revealed that they had been approached by counsel for the minister to settle their legal challenge against the VAT hike. The DA had sought an urgent interdict to prevent the increase from taking effect, with the Economic Freedom Fighters also joining the matter.
The standoff between the DA and the ANC over the tax increase had caused tension within the ruling coalition. Despite the opposition’s defiance, both parties ultimately decided to uphold their post-election pact. Minister Godongwana defended his decision to increase the VAT rate, citing the need to generate revenue to support social services that had been impacted by budget cuts.
Reversing the decision to hike VAT will result in a R75 billion budget shortfall, leading to a reevaluation of expenditure for the next three years. The treasury stated that any additional revenue collected by the South African Revenue Service would be used to offset the decrease in spending.
In response to the VAT reversal, Godongwana will introduce revised versions of the Appropriation Bill and the Division of Revenue Bill in the coming weeks. The minister’s stance on the VAT hike had faced criticism, with allegations of deception in securing parliamentary support for the fiscal framework.
Overall, the decision to maintain the VAT rate at 15% will have significant implications for South Africa’s fiscal sustainability. The government will need to navigate the budget shortfall and prioritize expenditure to ensure the country’s financial stability.
