Treasury scraps VAT hike
Treasury has reversed its decision to increase the Value-Added Tax (VAT) which was due to kick in on the 1st of May.
Finance Minister Enoch Godongwana confirmed in a statement on Thursday morning that the VAT rate will remain at 15%, shelving the proposed 0.5 percentage point hike that was announced during his Budget Speech last month.
“The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees,” the statement read.
The decision means an estimated revenue shortfall of R75 billion.
To address this, the minister has written to the Speaker of the National Assembly to withdraw both the Appropriation Bill and the Division of Revenue Bill.
This will allow for revised proposals to be brought before Parliament to realign spending in light of the lost revenue.
“The measures to cushion lower-income households against the potential negative impact of the rate increase now need to be withdrawn, and other expenditure decisions revisited,” Treasury said.
While the reversal leaves a significant gap in government finances, Godongwana noted that any additional revenue collected by the South African Revenue Service (SARS) may be directed towards offsetting the shortfall.
The Finance Ministry expects to introduce revised versions of the Appropriation Bill and Division of Revenue Bill within the next few weeks.
The initial VAT increase had been proposed as part of a broader effort to replenish funding for key public services strained by South Africa’s constrained fiscal position.
However, the Treasury now appears focused on balancing fiscal sustainability with social equity.
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