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 Added Tax (VAT) increase.
The 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 May 1, 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measures to cushion lower-income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited,” the statement read.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 EFF and the 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.”
Meanwhile, National Assembly Speaker, Thoko Didiza, said in a statement read by House chairperson Cedric Frolick during the meeting of the National Assembly Programme Committee yesterday: “The minister will withdraw the Division of Revenue and Appropriations Bills in order to propose expenditure adjustments. It is expected that the minister will introduce new bills in the forthcoming weeks. The effect of this is the review of the parliamentary programme as it currently stands. Once more details are obtained the whips will meet, followed by programme committee where a revised programme will be put up for consideration by members of the programme committee."
When the programme was up for discussion, ANC MP and programme whip, Cameron Dugmore, noted that the turn of events would have serious amendments to the parliamentary programme.
MK Party MP, Visvin Reddy, agreed with Dugmore.
Reddy said apart from the bills to be withdrawn, the fiscal framework that contained the VAT increase has been withdrawn too.
“If not done legally sound, we as the party will take this matter to court. We are not a spaza shop operation,” Reddy said.
Cape Argus