Major VAT warning for South Africa

The widely criticised VAT hike for South Africa on 1 May will proceed after being approved by most parties in the National Assembly.

Parliament voted 194 to 182 to adopt the 2025 fiscal framework report, which was approved by the Standing Committee on Finance without any amendments earlier this week.

The report’s adoption is the first of several steps in implementing the controversial 2025 budget, with the tabling of the Tax Amendment Bill to follow.

Contrary to political parties’ claims that the VAT hike had been removed or ended, Finance Minister Enoch Godongwana has confirmed that it remains part of the budget.

On Tuesday (1 April), the standing committee shot down proposals to formally amend the budget, which would have forced the matter back to the National Treasury for consideration.

Instead, the ANC and IFP committee members supported ActionSA’s non-binding “recommendation” to scrap the VAT hike and non-adjustment of tax brackets but not amend the budget.

This resulted in the framework being adopted without any changes, alongside a non-binding recommendation requesting alternatives be found within 30 days.

The report was adopted by the National Assembly on Wednesday, again with support from the ANC, IFP, ActionSA and smaller parties.

Speaking to Newzroom Afrika, ActionSA parliamentary leader Athol Trollip said that the ANC approached the party after side-stepping negotiations with its largest GNU partner, the DA.

He said that the ANC told the party it could not redo the whole budget because it would take too long, and there was already too much uncertainty in the market.

ActionSA said it would support the fiscal framework in the committee on condition that its recommendations be accepted—to which the ANC agreed.

The recommendation said that the framework was accepted on condition that National Treasury find alternatives to the VAT hike and non-adjustment of tax brackets over the next 30 days.

It made no proposals on how this should be done.

Trollip admitted that there was much speculation about whether the recommendation was binding, saying it was an unprecedented move and open to interpretation.

He said that the party believes that recommendations adopted by a committee and then adopted by parliament should be binding.

However, he would not be drawn into saying whether the recommendation was actually legally binding.

He also conceded that as soon as Godongwana tabled the budget and the VAT increase in March, the VAT hike would come into effect on May 1.

This would have been the case even if the parties opposed to the VAT hike had managed to send the budget back to be reworked.

Legal experts have said that the only way to stop the 1 May VAT hike is for the government to table and pass a new law blocking it from happening—something highly unlikely to happen before it is implemented.

However, ActionSA appears to believe that its non-binding recommendation will stop the hike from happening.

Trollip said Godongwana “can go and find the money and come back to parliament” and no longer implement the VAT hikes.

“I believe the minister can gazette legislation to say that the proposed VAT hike can be postponed or that it will not be implemented because they have now found additional revenue.”

This additional revenue could be from higher SARS collections or cutting expenditure on government programmes, he said.

Without any specifics, Trollip said there is money to be found, and the recommendation asks the Treasury to find it.

Treasury will entertain “discussions”

This does not appear to be a shared view by the Treasury.

In a separate interview, Godongwana said that ActionSA had suggested finding other revenue sources to achieve the same objectives as the tax hikes.

While the National Treasury was open to these discussions and would “explore those avenues”, he stressed that revenue measures, like the VAT hike and no adjustments to tax brackets, remain.

Godongwana noted during his budget vote speech that parties have only been addressing one side of the equation, the revenue side, and have not made any proposals on the expenditure side.

He said only the Democratic Alliance had made proposals to cut spending.

Thus, the budget passed on Wednesday keeps the National Treasury’s revenue figures, meaning any changes, like cutting taxes, will require a replacement for the same amount.

Finding the proposed cuts would require around R31 billion. Additionally, any proposals and considerations would take time.

Godongwana said any suggestion for alternative revenue sources—such as a wealth tax, or scrapping programmes or other changes—would need to be tested, scrutinised and processed.

“There are people who will come with different proposals…assuming we agree with them, the question is how long will it take to achieve that?”

“It may well be that is something that can be achieved within the next financial year—but those are robust discussions we will (need to) entertain,” he said.

The finance minister added that things can change based on the revenue outlook.

If the South African Revenue Service (SARS) collects more money, the 0.5 percentage point VAT hike proposed for 2026 could be scrapped.

However, this can only be determined later.

Next steps

The passing and adoption of the fiscal framework and revenue proposals was only step one in the budget approval process.

The framework sets out government’s macroeconomic policy stance, revenue projections, and the overall spending ceiling for the financial year.

The next step is to process and pass the Division of Revenue Bill, which has to happen within 35 days after the adoption of the framework.

The scheduled National Assembly sitting to do so is 6 May 2025.

This bill sets out how the total budget—guided by the fiscal framework—is divided among the three spheres of government: national, provincial, and local.

It ensures that each level of government receives an equitable share of the available resources to deliver services to the public.

The third step is processing and passing the Appropriation Bill, which has to happen within 4 months of the start of the financial year, 1 April.

The date to have this done is 10 June 2025.

This bill provides for the actual allocation of funds to individual government departments, entities, and programmes.

Parliament said that these timeframes have to be carefully scheduled and kept to ensure that the National Council of Provinces also has sufficient time to conduct its budget process.

Following the adoption of the Fiscal Framework and Revenue Proposals, the Division of Revenue Bill and the Appropriation Bill were immediately published in the official parliamentary papers and referred to the Standing Committee on Appropriations.

The process can be frustrated at any point if there is not majority support from the committee and in parliament.