VAT Increase Reversal: Treasury Announces Major Adjustment to Fiscal Plans
The Minister of Finance, Enoch Godongwana, is set to introduce key legislative measures aimed at reversing the previously proposed VAT increase in South Africa.
On Thursday, 24 April, the National Treasury confirmed that the Minister will soon table the Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill), which will maintain the current Value-Added Tax (VAT) rate at 15% as of 1 May 2025. This move replaces the earlier proposal to raise VAT by 0.5 percentage points, as announced in the 2025 Budget and approved in the fiscal framework earlier this month.
According to the Treasury, the decision follows extensive consultations with political stakeholders and a thorough review of parliamentary committee recommendations.
By choosing not to implement the VAT hike, the government anticipates a revenue shortfall of approximately R75 billion over the medium term. To address this, the Minister has formally written to the Speaker of the National Assembly to withdraw the Appropriation Bill and Division of Revenue Bill. These will be revised to reflect necessary expenditure adjustments and ensure fiscal sustainability.
Parliament will be requested to approve new expenditure measures designed to close the revenue gap without compromising key fiscal objectives.
The Treasury further noted that the decision not to proceed with the VAT increase also necessitates the withdrawal of previously proposed measures to cushion lower-income households, as these are no longer applicable. Additionally, spending plans across various sectors will be re-evaluated.
To help mitigate the impact of these changes, any additional revenue collected by SARS may be redirected to support the adjusted fiscal framework.
A revised Appropriation Bill and Division of Revenue Bill are expected to be introduced in the coming weeks.
While the VAT hike was initially proposed to restore funding for essential frontline services impacted by budget constraints, it faced significant opposition from both political parties and the broader public. Treasury acknowledged the need for alternative solutions, though it cautioned that some proposed revenue measures may carry adverse effects on economic growth and employment or may not yield immediate returns.
Nonetheless, these and other suggestions will be reviewed for potential inclusion in future budgets as the government seeks sustainable ways to enhance its resource base.