South Africa’s long-anticipated VAT increase, which was scheduled to take effect on 1 May 2025, has officially been withdrawn, following political disputes, legal challenges, and mounting pressure from opposition parties and the public. The decision was confirmed after Finance Minister Enoch Godongwana wrote to the Speaker of the National Assembly to halt the implementation of the VAT-related provisions in the Appropriation Bill and Division of Revenue Bill.
Why Was the VAT Increase Proposed?
Originally announced during the revised budget speech on 12 March 2025, the VAT hike was intended to raise much-needed revenue for key public services. The government had planned a gradual increase from 15% to 16%, implemented in two phases:
- 2025/26: VAT increase of 0.5 percentage points
- 2026/27: Additional 0.5 percentage points
However, this proposal faced intense backlash and was further complicated by delays in the budget process caused by disagreements within the Government of National Unity (GNU).
Legal Action and Political Pushback
The Democratic Alliance (DA) and Economic Freedom Fighters (EFF) filed court applications to block the VAT hike, citing its negative impact on already struggling households. A court ruling was expected on 29 April 2025, just days before the tax hike was due.
In an effort to avoid the legal showdown, Minister Godongwana offered the DA an out-of-court settlement, and National Treasury subsequently announced that the VAT increase would no longer proceed—at least for now.
Revenue Shortfall of R75 Billion
National Treasury has warned that withdrawing the VAT hike will result in a revenue shortfall of approximately R75 billion over the medium term. To address this, Parliament will now be asked to:
- Review and adjust national expenditure
- Consider alternative revenue strategies
- Withdraw planned cushioning measures for low-income households
What Does This Mean for Consumers?
With the VAT increase scrapped, consumers can expect VAT to remain at 15%, and no additional taxes will be levied on basic goods and services—at least for now.
The government had previously proposed expanding the list of VAT zero-rated items to soften the blow for low-income earners. These would have included:
- Canned vegetables
- Dairy liquid blends
- Organ meats from poultry, sheep, and other animals
However, with the increase cancelled, these relief measures are also being withdrawn.
What’s Next?
Treasury has confirmed that revised budget legislation will be tabled in the coming weeks to account for the changes. While personal and corporate tax increases have been ruled out for now due to their potential to hurt growth and investment, other revenue-raising proposals are expected in upcoming budget cycles.
Final Word
The decision to cancel the VAT increase reflects both political negotiation and public concern during a challenging economic period. While the move may bring short-term relief for consumers, South Africa’s long-term fiscal health remains under pressure. All eyes now turn to Parliament and Minister Godongwana’s revised budget plans.