South Africa will not increase VAT from 15% as planned in the 2025 budget due to political opposition. This decision is expected to create a revenue shortfall of 75 billion rand ($4.02 billion). Finance Minister Enoch Godongwana will introduce revised financial bills in the coming weeks, amid tensions between political parties regarding the VAT proposal.
The South African finance ministry announced that the planned value-added tax (VAT) increase, scheduled for May 1, will not proceed. Initially, the National Treasury aimed to raise VAT by 1 percentage point over two years but faced significant opposition from various political parties. As a result, VAT will remain at 15%. Finance Minister Enoch Godongwana is expected to unveil a revised Appropriation Bill and Division of Revenue Bill soon.
The decision to maintain the current VAT rate is projected to lead to a revenue shortfall of approximately 75 billion rand (equivalent to $4.02 billion) in the medium term. The ministry emphasized that adjustments will be requested from Parliament to manage expenditure without impairing the nation’s fiscal sustainability. Tensions between the African National Congress and the Democratic Alliance have surfaced over the VAT proposal, which included incremental increases of 0.5 percentage points each year. Furthermore, the legality of the proposed VAT hike has been contested in court.
South Africa’s decision to refrain from increasing VAT aims to address political concerns while managing fiscal health, with significant implications for the country’s revenue. The anticipated shortfall raises questions about expenditure adjustments necessary for maintaining fiscal sustainability. As political dynamics evolve, the proposed tax changes highlight ongoing tensions within the coalition government.
Original Source: www.tradingview.com
