Ramaphosa gives no promises to scrap VAT increases

President Cyril Ramaphosa says that the proposal put forward by various parties to look for alternatives to the VAT increases for 2025 and 2026 will be discussed and examined.

However, current analysis from National Treasury shows that there doesn’t appear to be a way to avoid it.

Ramaphosa was commenting on the budget drama that unfolded last week, where the ANC-led government of national unity (GNU) managed to pass the fiscal framework through the National Assembly with a narrow majority.

The Democratic Alliance, the second-largest partner in the GNU, voted against the budget, saying that it would not allow the planned one-percentage-point VAT hike to continue.

The party had pushed for a formal amendment to the budget in the Standing Committee on Finance. This would have required returning the budget to the National Treasury for changes.

However, the ANC, IFP, and Action SA argued that this would create unnecessary delays in the rest of the budget process and opted to approve the framework without any changes.

Instead, the committee added a “recommendation” to the report, tasking the National Treasury with finding an alternative to the VAT hikes within 30 days.

The recommendation is not legally binding and contains no formal proposals on where Treasury should find revenue to make up for the proposed cuts.

Despite this, Ramaphosa said that the government was taking the recommendation seriously—there just couldn’t be any promises.

“The resolution that was taken by the finance committee is that there will be a 30-day period during which Treasury will examine whether there are other options other than the VAT that can fill the gap of about R13.5 billion,” he said.

“That has been left for discussion and examination. In the end, we will look at all ways and means of seeing whether that is possible or not.”

Crucially, the president said that “from current examination, Treasury has said, having looked at various areas, that it doesn’t seem to be so“.

Ramaphosa said the process will play out over the next 30 days, and once that is completed, a report will be available.

This means that, at the very least, a 0.5 percentage point VAT hike will take effect on 1 May, as a report on the possibility of an alternative will only be available after this point.

Finance Minister Enoch Godongwana has given this credence, stating that the VAT hike remains part of the budget and cannot be removed unless alternative sources of revenue can be found.

This is because the fiscal framework passed by the finance committee and then the National Assembly is unchanged.

Further, the non-binding recommendation only deals with the revenue side of the budget, not the expenditure side—so any changes, wherever they might be, has to keep the spending amounts the same.

He also noted that even if proposals are put forwards for alternatives, these will take time to implement.

While this could occur within the financial year, it is doubtful it would be in time to stop the VAT hike in 2025 as the proposals need to be assessed, scrutinised, and tested.

While the political parties that voted to pass the budget without any changes are adamant that a solution will materialise over the next 30 days, no one—from parliamentarians to the President—will say with absolute certainty that there won’t be a VAT hike.

Legal experts have stated that the only way to stop the VAT hikes for 2025 would be rewriting the country’s laws—a process that can’t be done before the 1 May effective date.

Big banks, mobile operators and insurers in South Africa have already factored the VAT hike into their pricing from that date and have alerted clients to this effect.

Meanwhile, the unchanged budget continues its march through parliamentary processes. The draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill was gazetted on Friday.

The bill contains the VAT hike and the non-adjustment of tax brackets for 2025, and it will be sent to the finance committee once again for discussion.

If the bill is passed once again, it will go to a vote in the National Assembly, currently scheduled for 6 May 2025.