In a move welcomed by many South Africans, the National Treasury has confirmed a VAT freeze, officially shelving the planned increase in Value-Added Tax. Finance Minister Enoch Godongwana is expected to introduce legislation that will keep the VAT rate at 15% from 1 May 2025, reversing the previously proposed 0.5% increase that was previously announced in the February budget.
The Rates Bill to Maintain VAT at 15%
In a statement issued by National Treasury on 24 April, it was revealed that the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, commonly known as the Rates Bill, will soon be tabled. This bill aims to officially implement the VAT freeze, which reverses the earlier proposal to raise the rate.
The decision is the result of extensive consultations with parliamentary committees and political leaders, many of whom raised concerns about the impact on low-income households and the economy at large.
Revenue Shortfall and Budget Adjustments
The choice to halt the VAT increase is not without consequences. Treasury estimates a revenue shortfall of R75 billion over the medium term due to the VAT freeze. In response, Minister Godongwana has written to the Speaker of the National Assembly to withdraw the current Appropriation Bill and Division of Revenue Bill.
A revised version of these bills will be introduced shortly, aiming to realign government spending without compromising South Africa’s fiscal health.
Cushioning Measures Withdrawn
Since the VAT hike will no longer go ahead, Treasury confirmed that previously planned relief measures for vulnerable households will also be withdrawn. These measures were initially designed to mitigate the expected inflationary impact of a higher VAT rate.
Government will now revisit its expenditure priorities to align with the revised revenue outlook. Any additional income collected by the South African Revenue Service (SARS) may be used to help fill the gap created by the VAT freeze.
Future Plans and Fiscal Strategy
While the move to maintain the VAT rate has been welcomed by many, it leaves key questions unanswered about how the budget shortfall will be addressed. Treasury acknowledged various revenue suggestions but warned that some proposals could damage economic growth or delay revenue generation.
Nonetheless, the department is open to considering alternative proposals in future budgets to ensure the country remains on a sustainable fiscal path.
