Big VAT development in South Africa

The Sunday Times reported that South Africa’s biggest political party is set to back down from a plan to increase the value-added tax after other parties indicated they won’t support it.

The Johannesburg-based newspaper reported, citing a senior leader of the African National Congress, that talks with parties represented in parliament this week have made it clear that they would not support the plan to include a 0.5 percentage point increase to VAT in the nation’s budget.

The ANC held marathon talks this week with parties both within and outside the government of national unity in efforts to resolve an ongoing dispute over the nation’s budget.

The government of national unity (GNU) was formed after the May elections last year stripped the party of its majority for the first time since the end of apartheid in 1994, forcing it to partner with the Democratic Alliance and other smaller parties.

A clash between the main members of the governing alliance escalated when the second-biggest party, the Democratic Alliance, voted against a core piece of budget legislation.

It was passed in parliament anyway without the support of the key ally after the ANC sought the backing of smaller parties not included in the unity government.

While the governing alliance remains intact, Finance Minister Enoch Godongwana is now under pressure to find an alternative source of revenue to avoid leaving a 13.5 billion rand hole in the budget, the newspaper said.