South Africa Reverses Planned VAT Increase Amid Political Opposition

South Africa has decided not to proceed with the planned VAT increase of 1 percentage point set for May 1, 2025. The National Treasury indicated that the tax will remain at 15%, amidst political opposition and a resulting revenue shortfall of 75 billion rand. Parliament will be requested to adjust spending to ensure fiscal sustainability.

The South African government announced on Thursday its decision to withdraw the proposed value-added tax (VAT) increase set for May 1, as outlined in the 2025 budget. Initially, the National Treasury planned a phased increase of VAT by 1 percentage point over two years, a proposal that faced opposition from various political parties.

Finance Minister Enoch Godongwana indicated that VAT will remain at 15%. The ministry is poised to present revised versions of the Appropriation Bill and Division of Revenue Bill in the coming weeks. However, this decision is anticipated to result in a revenue shortfall estimated at 75 billion rand, approximately $4.02 billion, over the medium term.

To address the potential impact of this revenue loss on fiscal sustainability, Parliament will be asked to adjust expenditures accordingly. The proposal to increase VAT was particularly contentious among the coalition government, primarily the African National Congress and the Democratic Alliance, who are divided over the issue. Additionally, a legal challenge against the VAT hike had been filed in court.

In conclusion, South Africa’s decision to withdraw the planned VAT increase reflects significant political opposition and potential legal challenges. The decision to maintain VAT at 15% may lead to considerable revenue losses, prompting necessary adjustments in governmental expenditure to uphold fiscal sustainability. Future revisions to the budget will likely address these challenges as the Finance Minister works to balance revenues and expenditures.

Original Source: www.tradingview.com