Government Reverses VAT Hike Amid Economic Concerns

The South African government has reversed its decision to increase the Value-Added Tax (VAT) rate from 15% as initially proposed in the March Budget, following extensive consultations with political parties and recommendations from parliamentary committees.

In a media statement issued by the Ministry of Finance, it was announced that the VAT rate will remain at 15% effective from 1 May 2025, reversing a proposal that was aimed at raising approximately R75 billion in additional revenue over the medium term. The initial VAT hike had been intended to restore funding for critical frontline services affected by previous budget cuts.

To manage the anticipated revenue shortfall, the Minister of Finance has informed the Speaker of the National Assembly of his decision to withdraw both the Appropriation Bill and the Division of Revenue Bill. These bills will be revised to reflect expenditure adjustments that will ensure fiscal sustainability without increasing VAT.

“This decision reflects the outcome of wide-ranging engagement with political stakeholders, and demonstrates government’s commitment to balance economic growth, employment, and social protection,” the Ministry said.

The government now faces the challenge of compensating for the lost revenue without compromising essential public services. Measures that were to be implemented to protect low-income households from the effects of a VAT hike will also be withdrawn. However, any additional revenue collected by the South African Revenue Service (SARS) may be used to cushion these budgetary adjustments in the future.

The Finance Minister is expected to present revised versions of the Appropriation and Division of Revenue Bills in the coming weeks. The National Treasury is also considering alternative mechanisms to increase revenue in subsequent budgets without hindering economic growth or job creation.