{"id":820514,"date":"2025-04-11T09:15:00","date_gmt":"2025-04-11T07:15:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=820514"},"modified":"2025-04-11T09:15:00","modified_gmt":"2025-04-11T07:15:00","slug":"parliamentary-budget-office-rejects-vat-hike","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/government\/820514\/parliamentary-budget-office-rejects-vat-hike\/","title":{"rendered":"Parliamentary budget office rejects VAT hike"},"content":{"rendered":"\n

The Parliamentary Budget Office (PBO) has slammed the National Treasury\u2019s plan to increase value-added tax (VAT), labelling the proposal as regressive and tone-deaf in South Africa\u2019s current economic climate.\u00a0<\/p>\n\n\n\n

At the beginning of April, the government of national unity (GNU) passed the fiscal framework through the National Assembly with a narrow majority.<\/p>\n\n\n\n

Parliament voted 194 to 182 to adopt the 2025 fiscal framework report, which the Standing Committee on Finance had approved without any amendments earlier this week.<\/p>\n\n\n\n

The report\u2019s adoption is the first of several steps in implementing the controversial 2025 budget, with the tabling of the Tax Amendment Bill to follow.<\/p>\n\n\n\n

Contrary to political parties\u2019 claims that the VAT hike had been removed or ended, Finance Minister Enoch Godongwana has confirmed<\/a> that it remains part of the budget.<\/p>\n\n\n\n

The VAT rate is expected to increase to 15.5% on 1 May 2025 and to 16% on 1 April 2026.<\/p>\n\n\n\n

However, on Wednesday (9 April), the PBO slammed the VAT increase in its assessment of the Treasury\u2019s budgetary proposals. <\/p>\n\n\n\n

The PBO is a unit within Parliament established to provide independent and expert analysis of the nation’s budget and fiscal policies. <\/p>\n\n\n\n

It supports Parliament’s fiscal oversight role by offering unbiased, evidence-based research and analysis on socio-economic conditions, the impact of fiscal choices, and the broader economic landscape. <\/p>\n\n\n\n

The PBO painted a picture of an economy in regression and pointed out that since fiscal framework measures began in 2012, SA\u2019s annual official unemployment rate rose from 24.9% to 32% last year. <\/p>\n\n\n\n

\u201cThe youth unemployment rate, often described as a \u2018ticking time bomb\u2019 in SA due to its obscenely high rates, remained above the national average at 45.6% in 2024,\u201d said the PBO. <\/p>\n\n\n\n

\u201cThe National Treasury justifies the VAT increase by comparing the country\u2019s rate to countries with higher VAT, yet unemployment in these comparator countries ranges from 3% to 13.4% in 2024.\u201d.<\/p>\n\n\n\n

\u201cThough the intervention in spending in the public employment programmes is a step in the right direction, it is unlikely to significantly affect the millions of unemployed people, many of whom have been without jobs for a year or longer.\u201d<\/p>\n\n\n\n

Blow to middle- and lower-income households <\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

The National Treasury plans to shield vulnerable households from the proposed VAT increases through above-inflation social grant adjustments, expanding the list of zero-rated food items, and not increasing the fuel levy.<\/p>\n\n\n\n

However, the PBO argues that these measures alone do not sufficiently protect vulnerable households from the broader inflationary effects of a VAT increase.<\/p>\n\n\n\n

The Competition Commission\u2019s 2024 Essential Food Pricing Monitoring Report indicated that retail prices of essential foods remained persistently high despite lower producer costs and fuel prices. <\/p>\n\n\n\n

This suggests that retailers undermine protective measures by not passing savings to consumers.<\/p>\n\n\n\n

\u201cAn 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,\u201d said the PBO. <\/p>\n\n\n\n

Additionally, in its argument supporting the VAT increase, the Treasury noted that South Africa\u2019s VAT rate is relatively low compared to \u2018peer\u2019 countries.<\/p>\n\n\n\n

The PBO pointed out that while this is true, it ignores the extreme wealth and income inequality present within the country.<\/p>\n\n\n\n

\u201cIn South Africa, the bottom 50% of the population holds negative wealth (they owe more than they own), while the top 10% owns over 85% of the total wealth,\u201d said the PBO.<\/p>\n\n\n\n

\u201cBy contrast, the wealth and income distribution in these \u2018peer\u2019 countries is less concentrated in the hands of the top 10%.\u201d <\/p>\n\n\n\n

As a result, the PBO argued that populations in these countries are less exposed to the regressive impacts of higher indirect taxes because their wealth and income are distributed more equitably.<\/p>\n\n\n\n

\u201cThe proposed regressive revenue-raising measures are likely to disproportionately burden poor and low-income households\u2014deepening the country\u2019s inequality ratios,\u201d the PBO added.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Parliamentary Budget Office (PBO) has blasted the National Treasury\u2019s reasoning for hiking VAT.<\/p>\n","protected":false},"author":92,"featured_media":819246,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[20009,853,22261,7438],"class_list":["post-820514","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-government","tag-gnu","tag-south-africa","tag-the-parliamentary-budget-office-pbo","tag-vat"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/820514","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=820514"}],"version-history":[{"count":2,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/820514\/revisions"}],"predecessor-version":[{"id":820548,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/820514\/revisions\/820548"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/819246"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=820514"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=820514"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=820514"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}