Cape Town: National Treasury’s proposed 0.5% Value-Added Tax (VAT) increase is expected to be withdrawn when Finance Minister Enoch Godongwana introduces the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill) to Parliament. The VAT increase was initially planned for implementation from 1 May 2025, as announced in the Budget speech in March.
According to South African Government News Agency, the decision to withdraw the increase follows ‘extensive consultations with political parties and careful consideration of the recommendations of the parliamentary committees’. Treasury noted that the withdrawal is expected to create an estimated revenue shortfall of some R75 billion over the medium term.
As a consequence, the Minister of Finance has communicated to the Speaker of the National Assembly the intention to withdraw the Appropriation Bill and the Division of Revenue Bill to propose expenditure adjustments aimed at covering this revenue shortfall. Parliament will be asked to adjust expenditure in a way that maintains South Africa’s fiscal sustainability.
The decision not to increase VAT means that previously planned measures to mitigate the potential negative impact on lower-income households will be withdrawn, and other expenditure decisions will need reevaluation. To counterbalance the necessary expenditure adjustments, any additional revenue collected by the South African Revenue Service (SARS) may be considered for future use.
Godongwana is expected to introduce a revised Appropriation Bill and Division of Revenue Bill in the coming weeks. The initial proposal for a VAT rate increase was driven by the urgent need to restore funding for critical frontline services affected by the country’s constrained fiscal position.
While there are multiple suggestions for alternative solutions, some could lead to negative consequences for growth and employment, and others may not provide immediate revenue in the short term to replace a VAT increase. The National Treasury will consider these and other proposals as potential amendments in future budgets to increase available resources.