No VAT increase for South Africa

The National Treasury announced that Finance Minister Enoch Godongwana will soon implement measures to reverse South Africa’s planned 0.5 percentage point VAT increase.

The value-added tax (VAT) increase was set to kick in on 1 May 2025. However, it faced fierce resistance, including legal cases from the DA and EFF.

On Thursday, 24 April 2025, the National Treasury announced that Godongwana will introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill).

They will propose to maintain the Value-Added Tax (VAT) rate at 15 per cent from 1 May 2025, instead of the proposed increase to VAT announced in the Budget in March.

“The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees,” it said.

By not increasing VAT, estimated government revenue will fall short by around R75 billion over the medium term.

As a result, the finance minister has written to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill.

This action is needed to propose expenditure adjustments to cover this shortfall in revenue in the 2025 Budget.

Parliament will be requested to adjust expenditures to ensure that the revenue loss does not harm South Africa’s fiscal sustainability.

Another change is that the measures to cushion lower-income households against the VAT increase will also be withdrawn, and other expenditure decisions will be revisited.

Simply put, the additional food items which were set to be zero-rated will now remain exposed to the current 15% VAT.

“To offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward,” the National Treasury said.

The Minister of Finance expects to introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks.

Big VAT battle

The decision to reverse the VAT increase comes amidst fierce criticism from politicians, economists, and the public.

Earlier this week, the Democratic Alliance and EFF began court challenges to stop a proposed value-added tax increase.

The Western Cape High Court began hearing the DA’s application on Tuesday to interdict the half-a-percentage-point VAT increase.

“The DA is taking legal action to prevent what it believes to be an unjustified burden on already struggling South African households,” it said in a statement before the hearing.

“The party contends that the increase will further escalate the cost of living, disproportionately affecting the poor and vulnerable.”

Renowned economist Dawie Roodt said the state collected nearly R10 billion more in taxes than expected, which means it does not need to increase value-added tax (VAT).

He said the South African Revenue Service (SARS) collected around R10 billion more than expected in the previous financial year.

On 1 April 2025, SARS announced a positive preliminary revenue-collection outcome for the 2024/25 fiscal year.

By the end of March 2025, SARS had collected a record gross amount of R2.303 trillion, representing a 6.9% year-on-year growth.

SARS paid refunds of R447.7 billion to taxpayers, which brought the collected net amount to R1.855 trillion.

This is almost R8.8 billion higher than the revised estimate, and R114.0 billion more than last year’s R1.741 trillion.

“Half a percentage point increase will raise around R10 billion. That means the state has the money. We don’t need to increase VAT,” Roodt said.

“There was an overrun in the previous financial year, which is enough to prevent the planned VAT increase.”

Retired judge and tax expert Dennis Davis also said a VAT increase was unnecessary and that the government could find the money elsewhere.

He said that in a budget of around R2 trillion, it should be easy for the National Treasury to find R13.5 billion in savings.