The VAT increase, which was initially set to take effect from 1 May 2025, was first announced during the revised budget speech delivered on 12 March 2025. The decision followed a delay in the original budget presentation, which was scheduled for 19 February but postponed due to GNU disagreements over VAT.
The government had proposed a gradual VAT hike to raise the revenue needed. A 0.5 percentage point increase was to be implemented in 2025/26, followed by another 0.5 percentage point in 2026/27. This would have taken the VAT rate from 15% to 16% by 2026/27.
According to National Treasury, the decision to withdraw the increase follows “extensive consultations with political parties and careful consideration of the recommendations of the parliamentary committees”.
With a court decision looming on 29 April that could block the VAT increase, Minister Godongwana has offered the DA an out-of-court agreement. The DA and EFF had filed court proceedings seeking an interdict against the tax hike, which is scheduled for implementation in May.
Treasury estimated that the withdrawal of the VAT increase will create a revenue shortfall of around R75 billion over the medium term.
As a result, the Minister of Finance has written to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill, in order to propose expenditure adjustments to cover this shortfall in revenue.
“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,” Treasury said.
With the VAT increase no longer moving forward, the government will also withdraw measures that were intended to cushion low-income households from its potential negative impact. These included expanding the basket of VAT zero-rated food items to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry, and other animals.
The decision not to increase VAT means that the measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited. To offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward,
Godongwana is expected to introduce a revised Appropriation Bill and Division of Revenue Bill in the coming weeks.
The VAT increase was initially described as a necessary step to restore and replenish funding for key frontline services, which had faced budget reductions amid South Africa’s tight fiscal environment. Alternatives such as increasing personal or corporate income tax were rejected due to their potential to undermine economic growth, investment, and tax compliance.
Treasury has stated that while the VAT increase will not go ahead for now, other proposals to boost revenue will be considered in upcoming budgets.
