In a dramatic U-turn that blew a big hole in the country’s finances and potentially averted the break-up of the government of national unity (GNU), the Treasury has scrapped a planned hike in the VAT rate.
Finance minister Enoch Godongwana issued the Rates and Monetary Amounts and Amendments of Revenue Laws Amendment Bill on Thursday, scrapping a planned 0.5 percentage points VAT rate increase this year.
The legislative proposal is due to undergo parliamentary deliberations and votes before it is assented into law, paving the way for a revised budget. The amended budget will be the third to be presented for consideration to parliament after previous attempts to pass a budget were rejected by the DA, the second-largest party in the GNU.
The VAT saga encapsulates the broader dilemma facing SA’s first true coalition government, forcing the ANC to clumsily learn the art of compromise as it faces accusations of riding roughshod over the DA and other coalition members in devising policy.
The bill provides for, among other things, “amending the Carbon Tax Act, 2019, so as to amend an amount; to amend the VAT Act, 1991, so as to amend rates of tax and to amend schedule 2 to that act and to provide for the reversal of the VAT increases announced in terms of section 7(4) of the VAT Act, 1991”.
Business Day understands that the revised budget is unlikely to contain any tax hikes but will have extensive expenditure cuts to crucial services such as healthcare, education and security. The Treasury previously said the reversal of the hike would leave a R75bn expenditure shortfall over the medium term.
In all the negotiations on how to frame a new budget, the Treasury insisted that debt and interest costs should not increase dramatically, and it has remained steadfast in its fiscal strategy of debt sustainability.
Godongwana’s decision comes amid political and legal pressure to reverse the hike. On Wednesday, he presented an out-of-court settlement proposal to the DA, which had launched a court challenge over the VAT hike proposal.
The DA has not yet accepted Godongwana’s proposals, as it is “awaiting a formal written settlement offer”, DA federal council chair Helen Zille said.
The DA is continuing with part B of its court case, which seeks to declare sections of the VAT Act unconstitutional.
Thomson Wilks Attorneys director Bartho van Tonder said the reversal of the VAT hike was not set in stone as judgment in the DA case still has to be handed down. “As can be noted from the minister’s announcement, the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill will take at least several weeks to finalise.
“With the VAT rate scheduled to increase to 15.5% next Thursday, there is not sufficient time to introduce the bill in time to prevent the increase in the ordinary course,” Van Tonder said in a note.
“It was also provided for in the fiscal framework that set out how revenue is anticipated to be raised, so this would also have to be reconsidered.”
The DA and the ANC are scheduled to meet on Friday after a meeting of the two parties was cancelled on Thursday before Godongwana issued the gazette.
The DA rejected the passing of the fiscal framework in April, but the legislation was passed after the ANC sought support from parties outside the GNU, including ActionSA.
Update: April 24 2025
This story has been updated with new information.
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