Budget VAT increase in two, 0.5% stages – May 2025 & April 2026 – to 16%
In today’s (12 March 2025) second attempt to get the 2025/26 budget approved by the coalition government has proposed that an initial 2% VAT rise be cut back to two rises of 0.5% over the next financial years:
- 1 May 2025 rise from 15% to 15.5%; and
- 1 April 2026 rise from 15.5% to 16%
This would raise the country’s standard rate from 15% to 16%. The go-ahead to raise the VAT rate is conditional on the Treasury making headway on critical issues including fixing the nation’s ailing ports and undertaking a spending review, the people said. In particular a reduction in proposed infrastructure investment.
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
