Big question over VAT reversal in South Africa

With National Treasury announcing the reversal of the contentious 0.5 percentage points VAT hike on Thursday (24 April), legal experts have warned this doesn’t mean it’s a done deal.

Thomson Wilks Attorneys’ director, Bartho van Tonder, said that the finance minister’s announcement doesn’t make the VAT withdrawal fait accompli (“an accomplished fact”), with no legal clarity on how this will actually be done in time.

According to the finance minister, the withdrawal will be accomplished by first introducing the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill) without the VAT hike.

This will be followed by withdrawing the Appropriation Bill and the Division of Revenue Bill to propose expenditure adjustments to cover the resultant shortfall in revenue.

The Finance Ministry has already gazetted its intention to introduce the new Rates Bill in parliament.

However, Van Tonder said that, by Treasury’s own admission, processing all these changes will take several weeks to finalise—far beyond the 1 May implementation date of the tabled VAT hike.

This leaves a glaring question of what will happen in the interim.

Van Tonder noted that Section 7(4) of the VAT Act empowers the Finance Minister to change the VAT rate and set the date when it will take effect, announcing this with the tabling of the budget.

He did this on 12 March 2025, to increase it by 0.5 percentage points to take effect from 1 May 2025.

However, the Act does not specifically provide the power to make a further change, or withdraw the change, within another 12 months.

“The announced rate change would either be endorsed or changed through Parliament, through adopting of the relevant bill,” he said.

“With the VAT rate scheduled to increase to 15.5% next Thursday, there is not sufficient time to introduce the bill in time to prevent the increase in the ordinary course,” Van Tonder said.

The legal expert added that the VAT hike was provided for in the Fiscal Framework that set out how revenue is anticipated to be raised, so this would also have to be reconsidered.

Herein lies the big issue: while parliament can process the various bills, the fiscal framework—which the bills are based on—has been already passed and adopted, including the VAT hike.

How the VAT hike can be legally stopped

Legally speaking, it seems that the only effective and certain way that the VAT hike can be halted before the 1 May deadline is for a court to make this order, Van Tonder said.

The court would need to set aside the adoption of the Fiscal Framework, enabling amendments to be made.

This is the crux of the case brought by the Democratic Alliance and EFF on an urgent basis, with both parties seeking to overturn the adoption Fiscal Framework and set aside the process that approved the VAT hike.

This is on the basis that the Standing Committee on Finance did not follow the correct procedures in passing the framework.

The DA is also looking for a ruling on the powers of the Finance Minister to make unilateral changes to VAT, but this is a seperate matter that is not being heard urgently.

A ruling on the matter is expected by 29 April.

Van Tonder said that it appears that this may be part of the agreement reached between the Finance Minister and the DA.

The DA confirmed late on Wednesday that lawyers acting for the Minister of Finance had approached the lawyers appointed by the DA to propose an out-of-court settlement.

The DA said it is awaiting a formal, written settlement from the Finance Minstry related to its case, which, if accepted, should provide more clarity on what this means for the fiscal framework in particular.

“The court decision will likely also have to include a decision on the validity of the adoption of the Fiscal Framework,” Van Tonder said.

“Should it be set side, it would effectively nullify any decision to support the Fiscal Framework, with such conditions or otherwise.”

While legal and administrative questions now hang over the process to follow, political parties are patting themselves on the back for the reversal.

At media briefings on Thursday, the DA, EFF, Action SA, BOSA and the remaining parties of the GNU all claimed victory over the VAT hike, again promising that the increase will not happen come 1 May.