A national embarrassment that cost businesses millions

The government’s severe fumbling of the 2025 budget has left South Africa bruised, with businesses flushing money down the drain, preparing for a VAT hike that should clearly never have happened.

National Treasury announced on Thursday morning (24 April) that Finance Minister Enoch Godongwana will withdraw the contentious 0.5 percentage point VAT hike and table new bills without it.

This will include presenting a new Rates and Monetary Amounts and the Amendment of Revenue Laws Bill without the VAT hike, and withdrawing the Appropriation Bill and the Division of Revenue Bill to propose expenditure adjustments to cover the new shortfall in revenue.

In short, National Treasury will be amending the budget—something that would have happened had parliament’s Standing Committee on Finance voted to do so on 1 April.

Instead of voting to officially amend the budget at that point, the majority in the committee voted to adopt the fiscal framework as-is, along with a non-binding recommendation to change it.

The minority, including the DA and EFF, rejected the framework.

The framework—including the VAT hike—was then passed by parliament with a narrow majority thanks to the support of smaller parties after the DA and FF+ went against its GNU partners and rejected it.

As a result, South Africa was thrust into a month of confusion and uncertainty about the VAT hike, with no one able to say with certainty what would happen by 1 May.

This not only led to the Government of National Unity (GNU) splitting deeply—jeopardising the stability, confidence built since the 2024 national election—but also damaging businesses and sentiment.

As it stands, there is no clear indication of what finally shifted Godongwana’s position on the VAT hike.

While the ANC has been consulting and negotiating with smaller parties on the path forward, the finance minister had been adamant that there is no alternative to the VAT hike and that it would proceed on 1 May.

However, a court case brought by the DA and EFF against the processes followed during the Finance Committee meeting this week appeared to turn sour for those who supported the fiscal framework.

During proceedings, it was very apparent that the judges were confused how a fiscal framework could be adopted when members of the committee were not sure about what they were adopting.

According to the DA, after a blistering day in court, the finance ministry contacted the party to settle the matter—which the DA said was an indication that the state was looking at a loss.

The court is expected to rule on the matter by 29 April.

DA federal chair, Helen Zille, said that the court action was pivotal in getting the VAT hike reversed—although this is likely to be spun differently by the parties that voted to support it.

While the various political parties will no doubt all be taking credit for the reversal, the fact remains that the situation should never have reached this point, and that damage to many businesses has already been done.

The pressure is now on

Keitumetse Sesana, Strategic Lead for Stakeholder Engagement and Legislation at the South African Institute of Taxation (SAIT) said that the withdrawal of the VAT hike is ultimately a win for businesses.

However, many businesses had already spent millions in preparation for the hike—and that is now money down the drain.

Jerry Botha, managing partner at Tax Consulting SA, said the withdrawal would also have significant implications for the tax world.

Without the VAT hike, the Treasury will now sit with a R75 billion hole in the budget over the medium term that will have to be filled.

The big question that remains is where the government will now find this money. Treasury is likely to turn to the South African Revenue Service (SARS).

Sesana said that to offset the “unavoidable expenditure adjustments”, Treasury noted that any additional revenue collected by SARS will be considered to close the gap going forward.

This is an indication that it will be down to SARS to collect more revenue to make up the gap left by no VAT increase, and more scrutinising by SARS can be expected in the current financial year, she said.

In the latest tax year, SARS collected approximately R8.8 billion more than expected, which has led to some economists questioning the need for the VAT hike at all.

In the revised budget, SARS was given billions of rands more in funding to boost revenue collection, and the tax service has stated that there is about R800 billion in taxes uncollected.

Of this amount, between R300 billion and R500 billion is “theoretically” collectable.

However, higher tax collections are not a guaranteed thing, and the final numbers could just as likely surprise on the downside.

Godongwana said there are many other suggestions to cover the shortfall, however some of them would create greater negative consequences for growth and employment.

Some of them, “while worthwhile, would not provide an immediate avenue for further revenue in the short term to replace a VAT increase,” he said.

The minister said that parliament will be requested to “adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability”.

Godongwana said earlier that one of the only other ways to collect the money the government needs will be to increase borrowing in the financial markets, increasing the debt burden and debt service costs.