By Enyichukwu Enemanna
Failure to increase the value-added tax (VAT) rate from next month would cause severe economic consequences, South Africa’s finance minister has warned, according to court papers.
Enoch Godongwana’s position comes amidst a stand-off in the ranks of the parties that make up the country’s Government of National Unity (GNU) over the proposal contained in the 2025 budget.
The two biggest parties in the coalition government, the African National Congress (ANC) and the Democratic Alliance (DA), have been at odds over the proposal by President Cyril Ramaphosa’s administration to raise VAT by 0.5 percentage points on 1 May and another 0.5 points next year.
“If the rate increase is halted now, that revenue will be lost, and the state will be left without the funds needed to meet already-budgeted spending commitments,” Godongwana said in papers filed in court on Wednesday, responding to the DA’s opposition to the VAT increase.
At the moment, the African nation’s VAT stands at 15%.
Defending the government’s push for the VAT, the finance minister said any delay would come with grave economic implications. “The consequences would be severe and far-reaching. Government would be immediately forced either to cut expenditure or to increase borrowing.”
South Africa’s democracy allows parliament to amend or withdraw, through budget voting in the coming days, the contentious impending VAT hike.
Some smaller political parties have proposed further expenditure cuts instead of a VAT hike.
Local media reported last week that the ANC was likely to back down on the push for a VAT hike this year after indications that none of the parties it had engaged with would support it during budget voting.
South Africa’s National Treasury estimates that raising VAT will generate about 13.5 billion rand in additional revenue for the 2025/26 financial year.
