The National Treasury has announced that the VAT hike will be withdrawn.
Treasury released a statement in the early hours of Thursday morning, announcing that the proposed increase to VAT, announced in the March budget, will not go ahead next week.
Treasury said the decision follows extensive consultations with political parties, and “careful consideration of the recommendations of the parliamentary committees”.
This is expected to be announced by Finance Minister Enoch Godongwana in the coming days.
“The initial proposal for an increase to the VAT rate was motivated by the urgent need to restore and replenish the funding of critical frontline services that had suffered reductions necessitated by the country’s constrained fiscal position,” read the Treasury’s statement.
This means VAT will remain unchanged at 15% from 1 May 2025. This consumption tax was last increased in 2018, by a whole percentage point, from 14%.
While the move has been welcomed by those concerned about the cost-of-living impact, Treasury said it will leave a revenue gap of approximately R75 billion over the medium term.
“The decision not to increase VAT means that the measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited.”
To address this, the Minister of Finance has informed the Speaker of the National Assembly of his intention to withdraw the current Appropriation Bill and the Division of Revenue Bill. Revised versions of these bills will be introduced in the coming weeks.
“Parliament will be requested to adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability.”
The Treasury noted that any additional revenue collected by the South African Revenue Service (SARS) could potentially be allocated to offset the necessary budgetary adjustments. This is while alternative funding mechanisms are under consideration.
“There are many suggestions, however, some of them would create greater negative consequences for growth and employment and some of them, while worthwhile, would not provide an immediate avenue for further revenue in the short term to replace a VAT increase.”
Meanwhile, ANC Secretary-General Fikile Mbalula is expected to hold a joint briefing with other political parties, including the ActionSA and BOSA, on Thursday, broadly described as a “resolution of the fiscal framework impasse”.
The African National Congress, Inkatha Freedom Party, Action-SA, Pan Africanist Congress, Rise Mzansi, BOSA, United Democratic Movement, Good Party, Al-Jamah, Patriotic Alliance, as parties that have constructively engaged in fiscal framework deliberations, will hold a media… pic.twitter.com/l2IW7L7k0e
— ANC SECRETARY GENERAL | Fikile Mbalula (@MbalulaFikile) April 23, 2025
The DA also held a briefing in Cape Town hours earlier, claiming victory in the bid to get the VAT hike scrapped.
“This development marks a major victory for the DA and a turning point in the fight to protect South Africans from unjustified financial burdens,” read the DA’s statement.
This article has been updated to include additional information.
