South Africa’s VAT hike heads to court

The Democratic Alliance party began a court challenge to stop a proposed tax increase — a case that’s threatened to fracture the coalition government.

The Western Cape High Court will begin hearing the DA’s application on Tuesday to interdict the half-a-percentage-point increase in the value-added tax rate — currently at 15% — that’s scheduled to be implemented on May 1.

“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.”

The impasse over the planned tax increase has pitted the DA against the African National Congress, the largest party in the 10-member ruling alliance.

It’s raised investor uncertainty about the administration’s stability, with the potential withdrawal of the business-friendly DA opening the door for rival parties, including the populist Economic Freedom Fighters, to join the government.

Finance Minister Enoch Godongwana has said that scrapping the hike would leave a budget hole that would have to be filled by borrowing, sapping fiscal discipline and imposing a lasting cost on the country’s finances, and that he sees no viable alternative.