South Africa’s Finance Minister Enoch Godongwana has warned that dropping the proposed value-added tax (VAT) hike would have severe consequences for the country’s finances.
The VAT rate is currently at 15% and is set to increase by 0.5 percentage points on May 1, with another 0.5 points hike planned for next year.
Godongwana argued in court papers that halting the VAT increase would result in lost revenue and force the government to either cut expenditure or increase borrowing.
The proposal has sparked a stand-off between the African National Congress (ANC) and the Democratic Alliance (DA), the two biggest parties in the coalition government.
The DA has challenged the legality of the VAT hike plan in court, while some smaller parties have proposed deeper expenditure cuts instead of the VAT increase.
Godongwana conceded that the wrangling over the VAT hike might not be in the broader public interest but emphasized that the additional revenue generated would be crucial for meeting budgeted spending commitments.
The National Treasury estimates that raising VAT will generate about 13.5 billion rand in additional revenue for the 2025/26 financial year. South Africa’s debt obligations currently stand at 76% of GDP, and the budget deficit grew to 5%.
The country’s fiscal framework is under scrutiny, and lawmakers have the power to amend or withdraw the impending VAT hike through upcoming budget votes.
