Final nail in the coffin of the VAT hike in South Africa – report

There are signs that the ANC will likely abandon its proposed VAT increase, as none of the parties it spoke with this week would support it.

At the beginning of April, the Government of National Unity (GNU) passed the fiscal framework through the National Assembly with a narrow majority.

Parliament voted 194 to 182 to adopt the 2025 fiscal framework report, which the Standing Committee on Finance had already approved without any amendments.

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.

The VAT rate is expected to increase to 15.5% on 1 May 2025 and to 16% on 1 April 2026. The first 0.5% hike is expected to raise R13.5 billion in revenue. 

However, reports now indicate that the VAT hike could be scrapped following various meetings over the past week between the ANC and several other parties, including the DA. 

According to the Sunday Times, sources within the ANC noted that the final nail in the VAT increase’s coffin came during a meeting between the ANC and DA delegations this weekend.

A senior ANC member told the publication that marathon meetings with parties represented in parliament this week had made it clear that the VAT hike was unpalatable. 

They added that there would be zero support for the budget if it included a VAT hike during the final stages of its approval in parliament in the coming months.

“The VAT thing, including even in the ANC and everybody else, will not pass. The increase in VAT is not going to pass,” the ANC leader said. 

“The finance minister is under pressure now to… kick it into touch or take it out completely. That is where things are now.”

Positive signs for the GNU

Another indicator of this shift is the somewhat positive remarks about yesterday’s meetings between the DA and the ANC, which showed intentions to mend the GNU.

“The engagement took place in a constructive atmosphere, with both sides speaking respectfully yet frankly about the situation,” said the DA’s Federal Council Chairperson Helen Zille. 

This included talks about the need to resolve the budget’s impasse and enhance cooperation between the two parties.

She added that the DA reiterated that an increase in VAT would be unaffordable without meaningful structural reforms to boost economic growth and jobs.

Another senior ANC member told the Sunday Times that the focus was now on whether Godongwana and the Treasury could come up with an alternative before the end of the month.

This source indicated that Godongwana and the Treasury should be able to find the R13 billion elsewhere without hurting spending priorities because it was “not a lot” of money.

This reported U-turn in stance regarding the VAT increase also comes after the Parliamentary Budget Office (PBO) slammed the National Treasury’s reasoning behind the hike. 

The PBO argued that the VAT increase was tone-deaf amid the country’s current economic climate and stressed that the Treasury’s plans to shield vulnerable households were inadequate. 

“An increased VAT will disproportionately burden middle- and low-income earners, who typically spend over 68% of their income on essential items such as food, water, electricity, and housing,” said the PBO.

It added that the proposed regressive revenue-raising measure would disproportionately burden poor and low-income households—deepening the country’s inequality ratios.

Despite this shift in the stance against the VAT increase, some senior ANC members still believe the hike should stand, at least the first 0.5% pencilled in for May.

This member told the Sunday Times there was no appetite to revisit the fiscal framework to remove the VAT increase.

They added that apart from Action SA, which is not in the GNU, the other smaller parties had made peace with the planned VAT increase.

The leader added that parties such as Action SA must practise entering the GNU and allow the 0.5% VAT hike planned for this year to go through, and then pirates can work together to ensure this is the only VAT increase.

However, although there are still some conflicting views over whether the VAT hike should stay or go, the overall sentiment seems to be against the increase. 

In response to these comments, ANC spokesperson Mahlengi Bhengu-Motsiri said the ANC has always maintained that VAT should not be raised.

“The ANC went into these negotiations already disagreeing with the VAT increase, saying let us look at the revenue side of the budget to offset the VAT increase,” she said.