Navigating the Challenges of South Africa’s 2025 Budget and VAT Increase

South Africa faces a looming examination of its 2025 budget amid a proposed VAT hike plan. Lawmakers are set to review the budget in three phases and must approve it by April 3. If not passed, the government can operate under old budget provisions. The ANC seeks bipartisan support to address these pressing fiscal issues and navigate a complex political environment.

South Africa’s legislators will soon examine the 2025 budget, with potential amendments on the table as political parties debate a contentious proposal to raise value-added tax (VAT). Although Finance Minister Enoch Godongwana presented a revised budget on March 12, it was rejected by several major parties, despite a reduced VAT hike of one percentage point, spread over two years. For the first time since the end of apartheid, there is uncertainty surrounding the budget’s passage before the fiscal year concludes on March 31.

The budget review will occur in three phases. Initially, lawmakers will vote on the fiscal framework and revenue proposals that define economic policy, revenue forecasts, and government spending limits. Subsequently, they will review the division of revenue bill, which details fund allocation among national, provincial, and local governments. The final phase involves voting on the appropriation bill, which segregates funds for specific departments and initiatives. Each of these bills must be approved before proceeding to the next.

Legislators have until April 3 to ratify the fiscal framework and related revenue proposals, with some leeway allowed for delays. They can propose amendments to the budget but are restricted by parliamentary laws that limit alterations to the revenue and spending estimates outlined.

Should the budget remain unpassed by April 1, the commencement of the new fiscal year, the government would be permitted to continue operations using up to 45% of the previous budget until the new budget is approved. However, new budget allocations would require parliamentary consent.

The National Treasury indicated the VAT increase could take effect on May 1, independent of parliamentary approval for the budget. “The alteration will be effective from a date determined by the Minister, continuing for 12 months from that date,” stated the Treasury. If parliament later disallows the VAT increment, changes to tax legislation would need to be made within the next 12 months, but repayment of the existing tax would not be necessary.

The ANC faces a crucial challenge as it endeavours to secure sufficient support within the coalition established after losing its parliamentary majority. Secretary-General Fikile Mbalula expressed the party’s willingness to engage other political factions to facilitate budget approval. Minister Godongwana is open to feedback from lawmakers regarding the budget’s modifications, emphasizing the need for a sensible assessment of the surrounding trade-offs.

In summary, South Africa’s upcoming budget discussion presents significant challenges, particularly concerning the proposed VAT hike. Lawmakers are under pressure to pass the budget by April 3, with the potential for amendments existing within certain constraints. Should the budget fail to pass by the start of the new fiscal year, the government can utilize a portion of the previous year’s budget while the VAT hike may still be implemented despite ongoing legislative debates. The ANC must rally support to navigate this critical situation effectively, making this an essential moment in the country’s political landscape.

Original Source: money.usnews.com