Conflicting debate on go-ahead for VAT increase; two, 0.5% rises – May 2025 & April 2026 – to 16%
17 April 2025: South African Finance Minister, Enoch Godongwana, has said that failing to raise the Value Added Tax rate from May would cause severe harm to state finances. If the planned two-stage rise does not go ahead on 1 Mary, a R13.5bn shortfall in revenue would have to be found.
Last week, media was reporting that the ANC-led coalition government is likely to abandon two VAT increase to take the standard rate from 15% to 16%. Aside form local political disagreements, the ANC and Democratic Alliance partner government is also concerned about the effects on inflation in light of the new US tariff raising plans.
The plan is for rises in the next two financial years:
- 1 May 2025 rise from 15% to 15.5%; and
- 1 April 2026 rise from 15.5% to 16%
In February, the publication of the budget was pulled at the last moment once it became clear that a 2% VAT rise to 17% would be unacceptable to the government coalition partners.
19 Feb: Coalition government near collapse as 2025 budget blocked on VAT increase to 17%
The 19th February annual budget speech has just been postponed – probably until March 2025. This follows lack of agreement in the coalition Government of National Unity (GNU) parties about a potential 2% VAT rise from 15% to 17%. The Democratic Alliance party has blocked the VAT rise.
The increase would be to fill a budget shortfall of R22.3 billion and to help fund:
- Fund public sector wage increases
- Expand early childhood development
- Retain teachers, doctors, and frontline workers
- Revitalize commuter rail for working-class families
- Provide above-inflation social grants
In recent years, tax revenues have been supported by income tax rises via non-indexing for inflation. But consumption and corporate taxes have been flat. In proposing to raise VAT, the government was looking to rebalance this drift.
The Treasury has been reported as proposing a 2% rise to plug the gap. Coalition leaders must now discuss adjustments before the rescheduled budget on 12 March — and before the country’s fiscal year starts on 1 April.
South Africa’s 15% VAT is rate typical for the region:
- 15% Namibia
- 12% Botswana
- 15% Zimbabwe
- 16% Mozambique
