South Africa’s VAT will rise from 15% to 16% by April 2026 to address fiscal deficits. The increment is staged, first to 15.5% in May 2025, then to 16%. Opposition arises over consumer impacts, but zero-rated items will expand to ease burdens. No inflation adjustments for tax brackets further complicate the financial landscape amid a slowing economy.
South Africa’s government plans to incrementally raise its value-added tax (VAT) rate from 15% to 16% by April 2026. Announced by Finance Minister Enoch Godongwana during the 2025 Budget Speech, the increase will occur in two stages: first to 15.5% on May 1, 2025, followed by a second increase to 16% on April 1, 2026. This adjustment aims to narrow the growing fiscal deficit and ensure funding for essential public services, expected to generate an additional R13.5 billion ($736 billion) in the 2025/26 fiscal year.
The decision faced opposition particularly from the Democratic Alliance (DA) and some members of the African National Congress (ANC), who initially resisted a larger increase of two percentage points. The government has opted for a gradual approach to mitigate potential backlash and economic strain. DA leader John Steenhuisen proposed alternative revenue options, such as the sale of port concessions, expressing concern about the burdensome impact on consumers amid rising living costs.
To mitigate the VAT increase’s impact on low-income households, the government will enlarge the list of zero-rated VAT items starting May 2025. New inclusions will feature tinned vegetables, dairy alternatives, and various meats, including poultry and goat, aimed at protecting the most vulnerable consumers from the tax’s financial burden.
Additionally, the government plans no adjustments to personal income tax brackets for inflation, which could cause higher effective tax burdens due to “bracket creep.” Individuals receiving salary increases that align with inflation may find themselves in higher tax brackets without any tax relief. This approach is projected to raise R18 billion ($981 billion) in additional revenue.
The VAT increase also coincides with a rise in excise duties on alcohol and tobacco, set to increase by 6.75% and 4.75%, respectively, while fuel levies will remain stable to lessen financial stress. The 2025 budget faced a delayed announcement, highlighting the complexities of coalition governance which contributed to conflicts over fiscal policies.
Amid these adjustments, South Africa’s economic outlook remains tepid, with growth estimates for 2025 revised to 1.9%. The Treasury is focused on reducing the consolidated budget deficit from 5% this year down to 3.5% by 2027/28, while grappling with substantial debt servicing costs that exceed allocations for health and education combined. The VAT strategy, part of broader fiscal recovery efforts, seeks to fund essential services despite prevailing economic pressures facing the populace.
South Africa’s phased VAT increase aims to tackle a rising fiscal deficit while funding public services crucial for healthcare and education. The two-step increase, alongside adjustments to excise duties, comes amidst political resistance and economic challenges, including inflation’s impact on tax brackets. Ultimately, balancing fiscal responsibility with public accountability remains the government’s key challenge moving forward.
Original Source: thecondia.com
