Western Cape High Court rules VAT Act provision unconstitutional
The Western Cape High Court on Thursday declared the Value-Added Tax Act unconstitutional, ruling that it unlawfully gives the finance minister the power to change the VAT rate without parliamentary approval.
The full bench found that Section 7(4) of the VAT Act, which allows the finance minister to alter the VAT rate during the national budget process, is inconsistent with the Constitution.
However, the court suspended the declaration of invalidity for 24 months, giving Parliament time to amend the legislation and correct the constitutional defect.
Challenge brought by DA
The case was brought by the DA, the largest partner of the Government of National Unity, alongside the ANC.
The DA argued that Section 7(4) effectively delegates Parliament’s constitutional power to impose or alter national taxes to the executive, specifically the Finance Minister, Enoch Godongwana.
According to the party, the provision allows the minister to announce VAT rate changes in the national budget and implement them for up to 12 months, even before Parliament formally passes legislation approving the adjustment.
READ: DA hails court ruling on VAT hike as victory for all
In court papers, the DA argued this amounted to an unconstitutional delegation of legislative authority.
The party stated that if the minister announces a VAT change during the national budget, the altered rate becomes effective from a date determined by the minister and remains in force for a year, provided Parliament later passes legislation confirming the change.
Court finds minister given excessive powers
The full bench agreed with the argument that the provision grants the minister significant and unfettered authority over taxation.
In its ruling, the court emphasised that VAT is a central national tax that affects every consumer.
"We therefore hold that section 7(4) constitutes an impermissible delegation of legislative power to the executive. It is inconsistent with the constitution and invalid", the judgement read.
The court further stressed the scale of the authority given to the minister.
It said the provision directly affects the tax burden borne by every consumer of goods and services in South Africa and cannot be treated as a minor technical adjustment.
The judges also found that the legislation places no limits on how much the VAT rate could be increased or decreased, and provides no guidance on when such powers should be exercised.
"There is no statutory cap on the extent of the increase or decrease. There is no statutory guidance on the circumstances in which the power may be exercised, beyond the requirement that the announcement be made in the national annual budget", the judgement read.
VAT hike controversy
The constitutional challenge stems from the 2025 national budget, when Godongwana announced plans to raise VAT from 15% to 15.5% in May 2025, followed by a further increase to 16% in April 2026.
The proposal was intended to boost government revenue amid growing fiscal pressure.
Treasury estimated the increases would generate R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27.
However, the proposed tax hike sparked fierce opposition from political parties and became a major point of contention within the Government of National Unity.
DA leader John Steenhuisen rejected the plan, warning it would make South Africans poorer and worsen the cost-of-living crisis.
VAT increase eventually scrapped
Following political pushback and growing public criticism, Godongwana later halted the proposed VAT increase, confirming that the rate would remain at 15%.
The decision created an estimated R75 billion revenue shortfall, forcing the National Treasury to reconsider spending plans.
READ MORE: Godongwana not intending to resign over failed VAT hike
To address the funding gap, the finance minister withdrew both the Appropriation Bill and the Division of Revenue Bill from Parliament to allow revised budget proposals to be prepared.
Broader legal battle
The VAT dispute also led to a broader legal challenge by the DA and the EFF, who asked the court to set aside Parliament’s adoption of the 2025 fiscal framework.
The court previously suspended the planned VAT increase and invalidated Parliament’s approval of the fiscal framework linked to the tax changes.
In the latest ruling, the court confirmed that Section 7(4) of the VAT Act improperly transfers Parliament’s authority over national taxes to the executive, reinforcing the constitutional principle that taxation powers must remain with the legislature.
Parliament now has two years to amend the law to ensure that any future changes to VAT comply with constitutional requirements.
ALSO READ
