The Rand strengthened slightly on Thursday
Image: Picture: Henk Kruger/Independent Newspapers
The Rand showed signs of recovery on Thursday, strengthening slightly after Finance Minister Enoch Godongwana announced the government's decision to abandon the contentious Value Value Added Tax (VAT) increase.
This move, made public during a morning briefing, has been welcomed by various sectors including business and civil society, propelling the Rand to a value of R18.6650 against the US dollar, marking a modest gain of 0.1% from the previous day's close.
The proposed 0.5 percentage point hike, which was set to take effect on 1 May, had been introduced in the February National Budget to help bridge a significant R75 billion fiscal shortfall.
However, this proposal quickly found itself at the centre of a heated debate, facing mounting opposition from a coalition of business leaders and social advocates.
In a statement issued late on Wednesday, the National Treasury confirmed the reversal, citing "extensive consultations with political parties" and "careful consideration of recommendations from parliamentary committees."
“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measures to cushion lower-income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited,” the statement read.
“To offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward.”
The decision to abandon the proposed increase came amid legal challenges from the Economic Freedom Fighters (EFF) and the Democratic Alliance (DA), who had taken the government to court over the planned hike.
The EFF has also called for Godongwana’s resignation following the scrapping of the VAT increase, describing the proposal as “misguided, ill-conceived, and reckless.”
IOL Business