South Africa’s VAT saga is far from over

A legal battle over the finance minister’s powers to alter things like VAT through “announcements” could fundamentally change how tax adjustments are handled in the future.

Following the passing of the March 2025 budget by a narrow majority in the National Assembly earlier this year, the matter was challenged in court by the Democratic Alliance and the EFF.

While the first part of the case, relating to the reviled 0.5 percentage point VAT hike, was handled swiftly — arguably resulting in the budget ultimately being withdrawn — the second part of the case is ongong.

In the second part of the case, the DA and EFF are challenging the constitutionality of Section 7(4) of the VAT Act.

This section empowers the Minister of Finance to adjust VAT at the time of tabling the budget, with the change taking effect from a date he decides.

The DA and EFF have argued this oversteps parliamentary processes and makes sweeping changes ahead of the debates and approvals needed to pass it.

The Finance Minister argued that the section only provides for a temporary measure, with the VAT hike taking effect from the stated date for only 12 months.

In his answering affidavit, he said it was still up to parliament to make the change permanent or not.

While the DA and National Treasury reached an out-of-court settlement regarding the VAT hike, resulting in a new budget process, the challenge to the VAT Act is ongoing.

According to legal experts, while the DA and EFF are challenging the VAT Act specifically, the ruling in the matter will have far wider implications.

If the parties are successful with the legal challenge in the High Court, any the finding of unconstitutionality must be confirmed by the Constitutional Court.

Success overall would affect the finance minister’s ability to fund the Budget through a tax increase.

This is because South Africa’s tax legislation provides for many other taxes to be increased in the same way.

This includes income taxes, estate duties, various contributions and many others.

The future of tax changes in South Africa might change

According to economists at the Bureau for Economic Research (BER), this raises serious process issues relating to the budget and could lead to sweeping changes to how taxes are handled.

Should the courts rule in the DA and EFF’s favour, it would make it difficult for the National Treasury to take major revenue measures on Budget Day.

Over time, these measures will have to be shifted to the Medium-Term Budget Policy Statement (MTBPS), usually held in October, the BER said.

This means tax measures may be pushed back until later in the year to give space for processes to play out.

Broadly speaking, the February (or March, or May) Budget is seen as the main “revenue” budget, where the National Treasury makes most of its revenue and tax changes for the coming financial year.

The MTBPS, meanwhile, is an update on the country’s financials and sets the tone for the government’s budget plans over the medium-term, or three-year period.

Essentially, the MTBPS does not usually lay out any tax changes, but gives an indication of where the government finances are heading.

The BER said that, should the courts side with the view that the finance minister can’t make sweeping changes as he is currently empowered to do, a more considered approach would have to be taken.

This is not necessarily a bad thing, however.

“While this will be disruptive in the short term, in the longer term, this will bring about better forward-planning as tax increases will have to be negotiated and implemented ahead of time,” the BER said.