JOHANNESBURG, April 24 (Reuters) — South Africa has dropped plans to raise its value-added tax (VAT) rate from May 1, following significant opposition from coalition partners and concerns over the stability of the country’s unity government.
The National Treasury had initially proposed a 1 percentage point increase in VAT, to be phased in over two years, as part of the 2025 national budget strategy. However, sharp disagreement between the African National Congress (ANC) and its main coalition partner, the Democratic Alliance (DA), forced the government to reconsider. The VAT rate will remain at 15%, the Finance Ministry confirmed in a statement on Thursday.
“The decision to forgo the increase follows extensive consultations with political parties and careful consideration of the recommendations of the parliamentary committees,” the ministry said.
Finance Minister Enoch Godongwana will now present a revised Appropriation Bill and Division of Revenue Bill in the coming weeks to reflect the change in fiscal direction.
Fiscal Impact and Political Fallout
The move comes at a cost. Without the VAT hike, the government expects a revenue shortfall of approximately 75 billion rand ($4.02 billion) over the medium term. The ministry acknowledged the challenge, stating:
“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.”
The DA, which had taken legal action to block the VAT increase and voted against the fiscal framework in parliament, welcomed the reversal. Yet senior DA leader Helen Zille warned that tensions between the parties remained unresolved.
“Our relationship with the ANC is still marked by mistrust, and the future of the coalition is far from certain,” she said.
Finance Minister Godongwana had earlier defended the proposed increase in court filings, stating that failing to raise VAT would severely undermine the government’s ability to fund essential services.
Alternative Proposals Fall Short
Some smaller political parties had suggested deeper spending cuts as an alternative to raising VAT. While the Treasury acknowledged these ideas, it noted that such measures would not yield immediate fiscal relief.
“While some proposals are worthy of consideration, they do not offer a viable short-term substitute for the revenue that would have been generated by the VAT increase,” the ministry said.
The VAT decision adds another layer of complexity to South Africa’s evolving political and economic landscape, as the government seeks to maintain fiscal discipline while navigating an increasingly fragile coalition arrangement.
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