Last week it was still all systems go for the VAT rate to increase to 15.5% on 1 May 2025. This morning South African businesses and consumers woke up to the news that Finance Minister Enoch Godongwana has withdrawn the proposed increase of 0.5 percentage points.

This followed after another day in the Western Cape High Court where the DA is fighting the increase arguing among others, that the VAT rate can only be increased after Parliament decides and not through a decision only by the Minister.

Implications for business 

Keitumetse Sesana, Strategic Lead for Stakeholder Engagement and Legislation at the South African Institute of Taxation (SAIT), says the withdrawal is good news for business in the sense that the VAT rate will be unchanged at 15%. This is to be welcomed in a constrained economic environment. 

Many businesses were contemplating to absorb the increase to cushion consumers.

Political parties such as the Democratic Alliance (DA), the EFF, Freedom Front Plus and civil society groups have lamented the proposed VAT hike and the impact it will have on vulnerable consumers. The initial proposal of a 2 percentage points increase led to postponement of the Budget in February 2025. On 12 March, in Budget 2.0 Godongwana announced a 0.5 percentage points in each of the following two years. The DA also opposed this.

Sesana cautioned about uncertainty remaining should an out-of-court settlement about the VAT increase between the DA and the ANC not be reached. 

Jerry Botha, Managing Partner at Tax Consulting SA, says it is a significant development in the tax world. Businesses were left in the dark since the Budget was postponed in February but lately started preparing for the VAT increase by adjusting their systems to be ready by 1 May.

According to Sesana this entails some businesses may have already spent money in preparation for the hike and that is now down the drain. “But at least it is good news for business that the increase has now been withdrawn.”

Will Treasury look to SARS to fill the hole in revenue?

In a statement on 24 April 2025 the Ministry of Finance said it will shortly introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill), which proposes to maintain the VAT rate at 15%.

“The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees. By not increasing VAT, estimated revenue will fall short by around R75-billion over the medium term.”

Sesana says according to the statement, to offset the “unavoidable expenditure adjustments”, any additional revenue collected by the South African Revenue Service (SARS) may be considered for this purpose going forward.

Sesana says this can be an indication that it will be down to SARS to collect more revenue to make up the gap left by no VAT increase, and more scrutinising by SARS can be expected in the current financial year.

In the statement Godongwana said there are many suggestions, however some of them would create greater negative consequences for growth and employment and some of them, “while worthwhile, would not provide an immediate avenue for further revenue in the short term to replace a VAT increase”.

The Minister has written to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill, in order to propose expenditure adjustments to cover this shortfall in revenue. 

According to the Ministry Parliament will be requested to “adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability”. Godongwana said earlier one of the only other ways to collect the money Government needs, will be to increase borrowing in the financial markets, increasing the debt burden and debt service costs. 

Submitted by Tax Consulting SA