South Africa’s VAT went from a 4% temporary tax to 15% 

South Africa’s value-added tax (VAT) rate has increased from a general sales tax of 4% in the 1970s to 15% in 2025, with a further hike expected in the upcoming financial years.

Taxes on goods and services, what South Africans today know as VAT, started in 1978 as a 4% one-stage general sales tax. At the time, then Finance Minister Owen Horwood said the tax would never be higher than 4%. 

Under Horwood’s tenure, South Africa’s tax system underwent a gradual shift away from direct taxes, such as personal income taxes, towards more indirect forms of taxation, including the general sales tax.

Despite Horwood’s promises, the general sales tax had reached 7% by the time he left his position as Finance Minister in 1984.

This tax continued to rise until 1986, when the Margo Commission, led by Justice Cecil Margo, recommended replacing this system with a Comprehensive Business Tax or, alternatively, a VAT.

The commission raised concerns with the general sales tax, primarily related to evasion, the extent of the erosion of the sales tax base due to the general exemption of food items and the exclusion of most services.

A 2011 report from the Standing Committee on Finance explained that businesses could partially escape the cascading effect of the general sales tax through credit certificates. These certificates were abused, leading to concerns about tax evasion. 

Thus, in September 1991, VAT was introduced in South Africa at a rate of 10%, a far cry from the 4% introduced in the 1970s.

In the years following, South Africa’s VAT rate has continued to increase, reaching 15% in 2018, where it has stayed since.

The table below, based on data from the Reserve Bank, shows how South Africa’s general sales tax and VAT rates have increased since they were first introduced

Tax	Effective date	Rate
General sales tax	03.07.1978	4%
General sales tax	01.03.1982	5%
General sales tax	01.09.1982	6%
General sales tax	01.07.1984	7%
General sales tax	25.03.1984	10%
General sales tax	08.05.1984	12%
General sales tax	25.03.1985	13%
Value-added tax	30.09.1991	10%
Value-added tax	07.04.1993	14%
Value-added tax	01.04.2018	15%

More VAT hikes loom

“There’s nothing as permanent as a temporary tax. And VAT is a very good example of that,” economist Dawie Roodt told BizNews.

Roodt explained that he would not be surprised if the country sees further increases in VAT in the coming years. 

“And the reason for that is simply because that’s the only remaining tax that can be increased and bring in significant amounts of money,” he explained.

“The other taxes have been pretty much exhausted. In fact, we are overdoing it on some of the other taxes already.”

Roodt explained that VAT is a prime target for hikes in upcoming budgets because it is considered an “indirect tax” and highly efficient. 

After personal income tax, which constitutes around 40% of South Africa’s total tax revenue, VAT is the second most important source of income for the government, contributing around 30% of total tax take.

“It is actually quite an efficient tax in the sense that the collection cost is actually quite high, but it is very difficult to evade this kind of tax,” Roodt said.

“So, there are all sorts of benefits to value-added tax, but this is the only tax that can substantially increase the tax take for the Finance Minister.”

However, hiking this tax is easier said than done, as seen earlier this year in South Africa’s three-budget debacle.

At the start of 2025, the National Treasury was seeking additional revenue measures to fund the government’s ambitious spending plans, and it turned to VAT as a solution.

Therefore, in the February 2025 Budget, the Treasury was planning to implement a two percentage point increase in the VAT rate.

However, before this Budget could be tabled, members of the Government of National Unity (GNU) said they would not vote to pass it.

The Treasury was sent back to the drawing board, and a second Budget set to be presented in March was also struck down, with Finance Minister Enoch Godongwana only tabling the final 2025 Budget in May.

The Treasury’s compromise was to raise the VAT rate by one percentage point, split over two years, which was voted in.

However, this decision was later overturned by a court order that suspended the 0.5 percentage point increase that was originally announced to come into effect on 1 May 2025.

Ultimately, the Treasury managed to find other revenue measures, including an inflation-linked increase to the General Fuel Levy and ‘stealth taxes’ like bracket creep.

Now, the Treasury is set to find itself in a similar position for 2026’s Budget, with more revenue needed and few options to turn to.

This is why Roodt thinks a VAT hike could be on the horizon, although he acknowledges that there will be some political opposition again.

“That’s a dilemma of politicians, because politicians cannot say they’re going to increase taxes. Politicians never say they’re going to increase taxes,” he said. 

“They all say they’re going to spend more money on A, B and C. But never do they say they’re going to increase taxes.”

“It’s always down to the Minister of Finance to try to find the money somewhere. As I’ve said, the only remaining tax that can result in substantial additional inflows is the value-added tax. The other taxes are just not available.”

However, he explained that, while VAT has its benefits, it is also considered a regressive tax, which means that, relatively speaking, it affects poor South Africans the most.

“But in the end, there must be a tax increase if we continue on the current trajectory, because cutting back
on state expenditure is political suicide and politicians just won’t do that,” he said.