By Enyichukwu Enemanna
The largest party in South Africa’s coalition government, the African National Congress (ANC), has made a U-turn on a proposed value-added tax (VAT) increase that had pitted the party against its coalition partners.
The Democratic Alliance (DA), the second-largest contributor in the Government of National Unity (GNU), had strongly opposed the proposed VAT rise, challenging it in court and urging a judge to block it.
“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measures to cushion lower-income households against the potential negative impact of the rate increase now need to be withdrawn, and other expenditure decisions revisited,” said Finance Minister Enoch Godongwana on Thursday.
The proposed 0.5% tax hike reversal comes just days before it was due to take effect.
The decision to reverse the hike was reached after consultations with political parties and Parliament, the finance ministry said, though it warned that the move would result in a significant revenue deficit.
Other tax increases or public spending cuts may follow to address the 75 billion rand ($4 billion; £3 billion) shortfall, the ministry added.
The reversal of the tax rise is likely to be welcome news for many South Africans, most of whom are already burdened by the rising cost of living.
Godongwana had advocated for the increase, arguing it would help cushion the most vulnerable from the impact of other tax measures.
However, it was fiercely opposed by various political parties, including senior ANC members, who described the proposal as short-sighted.
Some smaller political parties have proposed deeper expenditure cuts instead of a VAT hike.
The minister is now expected to introduce a revised spending bill within the next few weeks.
In February, Godongwana had postponed his budget presentation following resistance to the proposed VAT increase.
The DA argued that the move would worsen the cost-of-living crisis and increase economic inequality.
