South Africa’s government has abandoned plans to increase value-added tax (VAT) from May 1, following opposition from coalition partners and investor concerns about a potential split in the government.
The National Treasury had proposed a 1 percentage point increase in VAT, spread over two years, as part of the 2025 national budget.
However, the two main parties in the coalition government, the African National Congress (ANC) and the Democratic Alliance (DA), disagreed on the proposal, with the DA challenging the tax hike in court. The VAT will remain at 15%.
The decision is expected to result in a revenue shortfall of around 75 billion rand ($4.02 billion) over the medium term, prompting the government to adjust expenditure to ensure fiscal sustainability.
The DA celebrated the decision, but expressed concerns about the future of the coalition, citing mistrust between the parties.
