South Africa: Finance Minister Suspends VAT Hike

Finance Minister Enoch Godongwana has canceled the planned 0.5% VAT increase. The increase was set to start on May 1. The VAT rate will remain at 15%.

Godongwana informed Speaker Thoko Didiza of his decision. The National Treasury released a statement about this change.

The statement said, "The Minister of Finance will introduce the Rates Bill soon." This bill proposes to keep the VAT rate at 15% from May 2025. This is instead of the previously announced increase in March.

The decision came after consultations with political parties and parliamentary committees. Not increasing VAT will result in an estimated revenue shortfall of R75 billion over time.

Due to this shortfall, Godongwana has written to withdraw two bills: the Appropriation Bill and the Division of Revenue Bill. He aims to propose expenditure adjustments to cover the revenue loss.

Parliament will be asked to adjust spending without harming South Africa's fiscal sustainability. The cancellation of the VAT increase means that measures for lower-income households must also be reconsidered.

To manage necessary expenditure adjustments, any extra revenue collected by SARS may be used. Godongwana plans to introduce revised versions of both bills in a few weeks.