The 0.5 percentage point VAT increase that the Treasury has decided will be imposed from May 1 will take effect regardless of whether parliament decides to change the budget to exclude any VAT increases.
The budget tabled in parliament by finance minister Enoch Godongwana on Wednesday also proposed an additional 0.5 percentage point VAT increase from April 1 2026.
The DA, the major opposition party in the government of national unity (GNU), as well as other opposition parties are vehemently opposed to a VAT increase, so it is highly likely that in the parliamentary negotiations on the budget, this proposal by the Treasury will be rejected.
Treasury acting deputy director-general of tax and financial sector policy Chris Axelson confirmed the 0.5 percentage point VAT increase would take effect on May 1.
That gives parliament about seven weeks to adopt a fiscal framework excluding a VAT increase as well as a law overturning the minister’s announcement. This will be difficult to achieve as parliamentary processes require extensive public consultations and the political party deliberations on a revised budget are likely to be extended.
“From our perspective, that is correct [that the VAT increase will be implemented regardless of what happens in parliament],” Axelson told Business Day. “Currently it is effective because the minister has announced it from May 1.”
He said there was a section in the Value-Added Tax Act that states if the minister makes an announcement to change the rates, “it is effective for 12 months from the date that it is implemented and is regardless of whether parliament passes the fiscal framework in the next few weeks”.
“I think if parliament decides not to do it, they would need to pass a law to basically undo what the minister has announced. I don’t think that they can just say in a report that they don’t want a VAT increase.”
Axelson said it would be very difficult administratively for consumers to be refunded the money disbursed on a higher VAT rate a year later if the increase was finally thrown out by parliament.
Chair of PKF SA tax committee Paul Gering agreed in a webinar on the budget that the 0.5 percentage point VAT increase would take effect on May 1 and advised businesses to prepare for this.
“From the moment the minister makes an announcement on the date from which that budget announcement takes effect, the VAT increase takes effect on May 1 2025 with all the huffing and puffing in the background, and will remain as such unless within 12 months parliament does not accept the passing of that legislation,” Gering said.
“The VAT increase is there, it is real. Businesses need to prepare for that VAT increase and a process will take place in parliament, which may or may not ratify the decision of the minister.
“If it does not ratify the decision, this will be the first time this has happened. We have had minor adjustments by parliament to some elements of legislation but never to the rates of either VAT or income tax. Only some minor detail about the effective date of application of certain laws,” Gering.
“It will be historic. We are in uncertain times but we do have a VAT rate change on May 1 2025.”
However, chair of parliament’s appropriations committee Mmusi Maimane - the leader of Build One SA - said a legal dispute could arise if parliament rejected a fiscal framework that made proposals on revenue and expenditure, including a VAT increase before May 1 and that the VAT increase were implemented. There would be a conflict between a rejected fiscal framework and a tax law. He said the committee would receive a briefing on the legal implications of the situation by parliament’s legal advisers next week.
Maimane accepted that the minister had the prerogative to make amendments to tax laws without the approval of parliament.
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