While economists and businesses welcome the reversal of the VAT hike, concern is mounting over the “political flip-flopping”, which is fuelling policy uncertainty and undermining business confidence.
“Political flip-flopping about tax proposals has created confusion, which contributes to undue cost of doing business pressures,” Jee-A van der Linde, senior economist at Oxford Economics, said.
“SA’s budget saga, which began on February 19 when finance minister Enoch Godongwana postponed his budget speech, has dragged out for far too long. Moreover, the politicking that ensued and the division it created among government parties have eroded the policy predictability many expected under the government of national unity (GNU),” Van der Linde said.
“While this was a positive move it is by no means a resolution of the bigger problem with our finances,” Alan Mukoki, CEO at the SA Chamber of Commerce and Industry (Sacci), said. “We still have a serious problem with how to deal with the budget and in particular the deteriorating debt servicing costs to revenue.”
Commenting on the policy uncertainty, Sacci president Mtho Xulu told Business Day: “We are worried.”
Xulu said while they were grateful for the reversal, he did not appreciate the decision-making process — a statement landing after midnight, without full insight on who made the decision, whether stakeholders were involved and how the drastic decision was taken.
“How many other policies could eventually be reversed, irrespective of the level of investment companies have made to comply with them?” he asked, referring to businesses that have already modified their systems to implement the 0.5 percentage point VAT change effective from May 1.
“Today it’s the budget and the VAT. Tomorrow it may be an environmental policy. Then it may be an infrastructure policy that is changed without proper explanation.
“At the very least, we’ve expected that the minister would have called an early morning press briefing and said, look, this is what we have done…. This is what we considered. This is where we think we’re going to get the revenues. And with all the consultations and all the considerations we have reached the view that we don’t need to do this thing [a VAT hike] — and obviously show some sympathy for those who would have invested in the changes.”
The Treasury on Wednesday confirmed that the two 0.5 percentage point VAT increases announced in the March budget revision will not go ahead. This will leave a R75bn budget shortfall over the medium term.
The amount stems from revenue that would have been generated had VAT been increased from 15% to 15.5% in 2025/26 and from 15.5% to 16% in 2026/27.
Raymond Parsons of the NWU School of Business and Governance urged calm, saying the R75bn shortfall should be viewed in manageable terms.
“We need to unpack it annually into R25bn per year, with a residual gap in 2025 of only about R13bn. It is difficult to believe that, with the necessary political will and economic expertise, it is not possible to find additional fiscal space within a budget spend of over R2.5-trillion.”
He said the VAT debate had sparked fresh thinking on how to reallocate spending and raise revenue.
Imraan Valodia, professor of economics and director of the Southern Centre for Inequality Studies at Wits University, said reprioritising certain budget allocations and cutting from SEOs, for example, were “big political decisions”. So the government is unlikely to go this route in the short term as they have to make decisions “within a week”, he said.
However, the short deadline brought new concerns.
“There is some risk that they make short-term political decisions without considering the longer-term economic issues,” he said.
“The danger is that they can pull back on areas that they shouldn’t be pulling back on, like health and education.” This also includes cutting social expenditure, all of which “slowly eroded the system” in the past five years, he said.
“I think what isn’t clear is whether it is the Treasury that makes the proposal for expenditure cuts, or whether parliament is going to decide this.
“The upside for me in all of this is that you’ve got a more democratic budget-making process, but that creates all sorts of unknowns. Who’s going to decide on what these expenditure cuts should be and if it’s going to be parliament how are they going to make those choices?”
He said whatever the options are, “there are going to be difficult choices between cuts in expenditure to make up for the revenue shortfall”.
Attempts have been made to improve revenue collection.
In March, Godongwana announced a R7.5bn allocation over three years to modernise the SA Revenue Service including the use of AI and data analytics to improve compliance and reduce future reliance on tax hikes.
Updated: April 24 2025
This story was updated with additional comment.
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