The Minister of Finance, Enoch Godongwana, has announced that the Value-Added Tax (VAT) rate will remain at 15% from May 1, foregoing a previously proposed VAT increase announced in the March Budget.
According to a statement issued by the Treasury, this decision comes after thorough consultations with political parties and careful consideration of parliamentary committee recommendations.
The decision to maintain the current VAT rate will result in an estimated revenue shortfall of R75 billion over the medium term. In light of this, the Minister has informed the Speaker of the National Assembly of his plan to withdraw the Appropriation Bill and the Division of Revenue Bill.
Adjustments to national expenditure will be proposed to cover the shortfall without compromising South Africa’s fiscal sustainability.
“The loss of anticipated revenue is significant, but maintaining the VAT at 15% will ease pressure on lower-income households, who were most likely to have been negatively impacted by the rate increase,” the statement read. However, expenditure adjustments and revisions to offset this decision will now be necessary.
Plans to introduce measures aimed at cushioning lower-income households against the potential impact of the VAT increase will be withdrawn. Meanwhile, alternative expenditure priorities will be evaluated to address revenue shortfalls, and any additional funds collected by SARS may be used to mitigate these challenges moving forward.
The Treasury statement noted that while the initial VAT increase proposal was essential for restoring funding to critical frontline services, the government is mindful of the broader economic and employment implications, as well as the immediate challenges to generating additional revenue.
Possible alternatives and suggestions for increasing funds will continue to be reviewed. “Suggestions will be considered for potential amendments in future budgets, though some options may have greater negative consequences for growth and employment,” the statement said.
A revised version of the Appropriation Bill and Division of Revenue Bill is expected to be introduced to Parliament in the coming weeks. The National Treasury will focus on ensuring the proposed adjustments maintain the country’s fiscal stability while continuing to prioritise sustainable economic growth and service delivery.
