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Ramaphosa's ANC to increase VAT for South Africa
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Finance minister Enoch Godongwana has proposed a 0.5 percentage point increase for value-added tax (VAT) in the 2025/26 financial year, followed by a further 0.5 percentage point increase in 2026/27.
He made the announcement while presenting his 2025 Budget Speech on 12 March 2025. The speech was originally intended to take place in February but was postponed after cabinet could not agree on the VAT hike.
A Budget Speech review document revealed that Godongwana initially planned to propose a two percentage point VAT increase in 2025/26.
After deliberating with the cabinet, he has proposed a one-percentage-point VAT hike spread over the next two financial years.
"To raise the revenue needed, the government proposes to increase the VAT rate by half-a-percentage point in 2025/26, and by another half-a-percentage point in the following year," said Godongwana.
"This will bring the VAT rate to 16 per cent in 2026/27."
However, he noted that National Treasury would review how some of its other initiatives to boost revenue perform and said it may not have to implement the further 0.5 percentage point hike in 2026/27.
He explained that, as VAT is a tax that impacts everyone, the government opted for a marginal VAT increase after considering the impact of a hike.
"The increase is also the most effective way to avoid further spending cuts and to enable us
extend the social wage," he added.
Godongwana said government also proposes no inflationary adjustments to personal income tax brackets, rebates, and medical tax credits.
"These measures will raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27," he added.
The minister explained that the decision was not taken lightly.
"No Minister of Finance is ever happy to increase taxes," said Godongwana.
He explained that the cabinet examined various alternatives to raising the VAT rate, weighing up policy trade-offs, including increases to corporate and personal income taxes.
"Increasing corporate or personal income tax rates would generate less revenue while potentially harming investment, job creation, and economic growth," he said.
"Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs."
Moreover, the minister noted that South Africa's corporate income tax collections are already higher than most of its peer countries.
"On the other hand, an increase to the personal income tax rate would reduce taxpayers' incentives to work and save," he added.
Godongwana noted that South Africa's VAT rate is relatively low compared to the average of the Organisation for Economic Co-operation and Development (OEDC).
The minister announced that National Treasury has assigned R3.5 billion to the South African Revenue Service (SARS) in 2025/26, followed by a further R4 billion over the medium term.
He also proposed expanding the basket of VAT zero-rated food items to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry, and other animals.
Another intervention to increase revenue collection is the proposal to increase the excise duties on alcohol by 6.75 percentage points.
At the same time, Godongwana proposed a 4.75 percentage point hike for cigarettes, cigarette
tobacco, and electronic nicotine and non-nicotine delivery systems excise duties, and a 6.75 percentage point increase for pipe tobacco and cigars.
It's important to note that the government of National Unity (GNU) must still agree upon these proposals.
In a post on X, Democratic Alliance (DA) leader John Steenhuisen said the DA will not support the budget in its current form.
He made the announcement while presenting his 2025 Budget Speech on 12 March 2025. The speech was originally intended to take place in February but was postponed after cabinet could not agree on the VAT hike.
A Budget Speech review document revealed that Godongwana initially planned to propose a two percentage point VAT increase in 2025/26.
After deliberating with the cabinet, he has proposed a one-percentage-point VAT hike spread over the next two financial years.
"To raise the revenue needed, the government proposes to increase the VAT rate by half-a-percentage point in 2025/26, and by another half-a-percentage point in the following year," said Godongwana.
"This will bring the VAT rate to 16 per cent in 2026/27."
However, he noted that National Treasury would review how some of its other initiatives to boost revenue perform and said it may not have to implement the further 0.5 percentage point hike in 2026/27.
He explained that, as VAT is a tax that impacts everyone, the government opted for a marginal VAT increase after considering the impact of a hike.
"The increase is also the most effective way to avoid further spending cuts and to enable us
extend the social wage," he added.
Godongwana said government also proposes no inflationary adjustments to personal income tax brackets, rebates, and medical tax credits.
"These measures will raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27," he added.
The minister explained that the decision was not taken lightly.
"No Minister of Finance is ever happy to increase taxes," said Godongwana.
He explained that the cabinet examined various alternatives to raising the VAT rate, weighing up policy trade-offs, including increases to corporate and personal income taxes.
"Increasing corporate or personal income tax rates would generate less revenue while potentially harming investment, job creation, and economic growth," he said.
"Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs."
Moreover, the minister noted that South Africa's corporate income tax collections are already higher than most of its peer countries.
"On the other hand, an increase to the personal income tax rate would reduce taxpayers' incentives to work and save," he added.
Godongwana noted that South Africa's VAT rate is relatively low compared to the average of the Organisation for Economic Co-operation and Development (OEDC).
The minister announced that National Treasury has assigned R3.5 billion to the South African Revenue Service (SARS) in 2025/26, followed by a further R4 billion over the medium term.
He also proposed expanding the basket of VAT zero-rated food items to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry, and other animals.
Another intervention to increase revenue collection is the proposal to increase the excise duties on alcohol by 6.75 percentage points.
At the same time, Godongwana proposed a 4.75 percentage point hike for cigarettes, cigarette
tobacco, and electronic nicotine and non-nicotine delivery systems excise duties, and a 6.75 percentage point increase for pipe tobacco and cigars.
It's important to note that the government of National Unity (GNU) must still agree upon these proposals.
In a post on X, Democratic Alliance (DA) leader John Steenhuisen said the DA will not support the budget in its current form.
Source - mybroadband
