{"id":825113,"date":"2025-05-22T11:03:42","date_gmt":"2025-05-22T09:03:42","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=825113"},"modified":"2025-05-22T11:04:02","modified_gmt":"2025-05-22T09:04:02","slug":"the-big-vat-announcement-that-is-not-good-news-for-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/government\/825113\/the-big-vat-announcement-that-is-not-good-news-for-south-africa\/","title":{"rendered":"The big VAT announcement that is not good news for South Africa"},"content":{"rendered":"\n

While consumers welcome relief from the reversal of the VAT hike in South Africa, the decision also means that the basket of zero-rated items will not be extended. <\/p>\n\n\n\n

The Consumer Goods Council of South Africa (CGCSA) argued this is a double-edged sword for low-income households in the country.\u00a0<\/p>\n\n\n\n

In the initial budget tabled by Finance Minister Enoch Godongwana, he proposed extending the basket of zero-rated goods to cushion low-income households from the accompanying VAT increase. <\/p>\n\n\n\n

In South Africa, certain basic food items are zero-rated, exempting them from Value Added Tax (VAT).<\/p>\n\n\n\n

Currently, South Africa\u2019s VAT-free basket comprises 21 basic foodstuffs, including items such as eggs, fruit and vegetables.<\/p>\n\n\n\n

Godongwana proposed expanding this to include chicken feet, organ meats from sheep, poultry, and other animals, canned vegetables, and dairy liquid blends.<\/p>\n\n\n\n

During his speech in March, Godongwana said that the government is very aware of the cost-of-living pressures households face, including high food and fuel prices and rising electricity and transportation costs.<\/p>\n\n\n\n

Therefore, he added that we are taking concrete steps to protect vulnerable households, including expanding the basket of VAT zero-rated food items. <\/p>\n\n\n\n

Despite this, in the VAT increase reversal statement of 24 April 2025, the National Treasury announced that the move also means these items will not be added to the zero-rated basket.<\/p>\n\n\n\n

\u201cNo VAT increase means that the measures to cushion lower-income households against the negative impact of the rate increase need to be withdrawn and other expenditure decisions revisited,\u201d it said.  <\/p>\n\n\n\n

On Wednesday, 21 May, Godongwana confirmed this decision when he delivered the third reiteration of the 2025 National Budget Speech.<\/p>\n\n\n\n

\u201cAs I have already said, the proposed increases in the VAT rate in 2025\/26 and 2026\/27 have been dropped. <\/p>\n\n\n\n

\u201cAs a result, the expansion of the zero-rated basket, which was included to cushion poorer households from the VAT rate increase, falls away,\u201d said Godongwana.<\/p>\n\n\n\n

He added that compared to the March estimates, tax revenue projections have been revised down by R61.9 billion over the three years. <\/p>\n\n\n\n

\u201cThis reflects the reversal of the VAT increase and the much weaker economic outlook.\u201d <\/p>\n\n\n\n

Double-edged sword for some consumers<\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

Following Treasury\u2019s announcement to scrap the VAT hike, the CGCSA said it cautiously welcomed the decision to stop the increase.<\/p>\n\n\n\n

CGCSA CEO Zinhle Tyikwe noted that the decision will significantly ease the financial burden on South Africans, especially poor households.<\/p>\n\n\n\n

However, she stressed it’s a double-edged sword for these households, as expanding the zero-rated basket would\u2019ve helped them cope with the increasing cost of living. <\/p>\n\n\n\n

The council argued that expanding the basket of items exempt from VAT should have remained in the budget.<\/p>\n\n\n\n

Tyikwe said this concerns the council and its members, as many South Africans are hard-hit by the cost of living.<\/p>\n\n\n\n

\u201cThe zero-rating of the additional products would have gone a long way toward cushioning consumers, improving healthy eating and lifestyles, and improving food security,\u201d said Tyikwe.<\/p>\n\n\n\n

\u201cExpanding the basket of VAT zero-rated food items would have greatly benefited consumers.\u201d<\/p>\n\n\n\n

This is because VAT is inherently a regressive tax when there are no zero-rating provisions or exemptions in place. <\/p>\n\n\n\n

Lower-income households pay more of their disposable income in VAT on essential goods and services compared to high-income households. <\/p>\n\n\n\n

Although high-income households may pay more in total VAT due to their larger spending, the burden relative to their income falls more heavily on those with lower incomes. <\/p>\n","protected":false},"excerpt":{"rendered":"

While consumers welcome relief from the reversal of the VAT hike in South Africa, the decision also means that the basket of zero-rated items will not be extended.\u00a0<\/p>\n","protected":false},"author":92,"featured_media":812935,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[21799,3796,853,22422],"class_list":["post-825113","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-government","tag-finance-minister-enoch-godongwana","tag-national-treasury","tag-south-africa","tag-the-consumer-goods-council-of-south-africa-cgcsa"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/825113","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=825113"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/825113\/revisions"}],"predecessor-version":[{"id":825151,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/825113\/revisions\/825151"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/812935"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=825113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=825113"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=825113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}