South African Government Withdraws Proposed VAT Increase After Political Pushback

The Ministry of Finance has officially withdrawn the proposed 0.5% increase to the Value-Added Tax (VAT) rate following two months of public and political opposition.

The VAT rate was scheduled to rise from 15% to 15.5% on May 1, a move first announced during the Budget Speech in March 2025.

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In a statement released this morning, the ministry confirmed that the decision came after “extensive consultations with political parties” and careful consideration of parliamentary committee recommendations.

Despite the backtrack, Treasury warned that not proceeding with the hike would result in an estimated R75 billion revenue shortfall over the medium term.

Finance Minister To Propose Revised Spending Plan

To manage the shortfall, Finance Minister Enoch Godongwana has written to the Speaker of the National Assembly to formally withdraw the Appropriation Bill and the Division of Revenue Bill.

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The aim is to adjust government expenditure in a way that maintains fiscal sustainability without the need for additional tax burdens.

“Parliament will be requested to adjust expenditure to ensure the loss of revenue does not harm South Africa’s fiscal position,” the ministry said.

As a result of the cancellation, previously proposed relief measures for low-income households to cushion the impact of the VAT hike will also be withdrawn.

Godongwana is expected to present revised versions of the budget bills in the coming weeks.

The ministry also indicated that additional revenue collected by SARS may be used to offset unavoidable expenditure adjustments.

DA Declares Victory In Battle Against VAT Hike

The Democratic Alliance (DA) welcomed the decision, calling it a “major victory” for the party and a crucial win for South African households facing economic hardship.

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The DA had lodged a legal challenge against the VAT increase, which prompted the Finance Ministry’s legal team to seek an out-of-court settlement.

“After steadfast opposition by the DA, lawyers acting on behalf of the Minister of Finance approached our legal team with a proposal for settlement,” the party said in a statement.

“This marks a turning point in the fight to protect South Africans from unjustified financial burdens.”

The Ministry of Finance emphasized that while other proposals to raise revenue are under review, many present greater risks to economic growth and employment in the short term.

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