VAT blow to South Africa

US President Donald Trump is escalating his global tariff and trade war, this time targeting countries that charge value-added tax (VAT) on imports, like South Africa.

The plan was published on Trump’s social media accounts on Monday, 17 February 2025, where the United States president said his administration would pursue “fairer” trade terms with all countries.

“Whatever rate countries charge the United States of America, we will charge them. No more, no less,” he said.

“For purposes of this United States Policy, we will consider countries that use the VAT system, which is far more punitive than a tariff, to be similar to that of a tariff.”

Many countries, including South Africa and most of Europe, charge a value-added tax on goods and services imported into their countries.

VAT is an indirect tax on the economy’s consumption of goods and services. It is one of the key measures the government uses to raise revenue.

It is charged at each stage of the production and distribution process for goods and services and is proportional to the price charged for these.

Crucially, VAT is also payable on importing goods and imported services, something Trump views as unfair towards the United States.

South Africa’s VAT rate was raised to 15% in 2018, and there have been murmurings of another potential hike in 2025.

Given Trump’s latest direction, this would put South Africa in line for a 15% tariff on its exports going through to the United States, on top of any other tariffs it might impose to balance trade.

“Sending merchandise, product, or anything by any other name through another country, for purposes of unfairly harming America, will not be accepted,” Trump said.

Trump’s latest salvo on trade follows a spate of executive orders earlier this month threatening to impose 25% tariffs on the United States neighbours, Canada and Mexico if certain conditions were not met.

While these were later delayed, the US President has continued to lay threats on other countries like China and the European Union.

“For many years, the US has been treated unfairly by other countries, both friend and foe,” President Trump said.

“This system will immediately bring fairness and prosperity back into the previously complex and unfair system of trade. A level playfield for American workers.”

AGOA again

Trump’s statement also attacked subsidies and various trade barriers, which he sees as imbalanced and disadvantageous to the United States.

“In addition, we will make provision for subsidies provided by countries to take economic advantage of the United States,” Trump said.

“Likewise, provisions will be made for nonmonetary tariffs and trade barriers that some countries charge to keep our product out of their domain or, if they do not even let US businesses operate.”

This again questions the African Growth and Opportunity Act (AGOA), which is already at risk due to increased tension between South Africa and the United States.

AGOA grants qualifying members beneficial access to United States markets and heavily favours them through tariff-free access to eligible products.

South Africa’s continued presence in the Act has long been under question, even before Trump’s second term as president.

This is because the country is a middle- to upper-income economy, and AGOA was conceptualised to benefit lower-income nations.

However, South Africa’s foreign policy stance and cosying up to the United States’ enemies in Iran, Russia and China in international relations have made it a prime target for US lawmakers.

AGOA is expected to end in September 2025, and given Trump’s position on the trade balance, it is more likely that South Africa will not be part of it if it continues.

Economists have noted that the suspension of AGOA poses a serious economic risk for the South African economy.

Getting kicked out could increase tariffs, making South African products less competitive in the United States market.

United States’ contribution to import VAT

In 2023/24, the South African Revenue Service (SARS) collected R263.2 billion in import VAT, accounting for 15.2% of the total tax revenue collected.

Import VAT carried an effective tax rate of 9.3% when factoring in all adjustments.

The biggest contributors to import VAT are machinery and electronics, chemical products and vehicles, aircraft and vessels.

However, only 11.1% of the total import tax comes from the Americas (including North and South America), compared to 30.5% from Europe and 52% from Asia.

Per country, China and Germany — respectively contributing R98.5 billion and R30.3 billion of total import tax — remained the principal suppliers of taxable goods to South Africa, SARS said.

The United States is third, contributing R25.4 billion, or 7.6% of total import tax.