VAT increase: Court reserves judgment

The Western Cape High Court heard on Tuesday that the Constitution does not permit Parliament to delegate the power on decisions regarding tax to its executive.

This was an argument advanced by the DA's legal representative Advocate Michael Bishop during the urgent application by the DA and EFF to interdict the VAT (Vale Added Tax) increase from taking effect on May 1 and to set aside the fiscal framework report adopted by Parliament last month.

“The power to tax can’t be delegated to the executive,” Bishop told the court.

Bishop told the full bench that the case before court was about who decides to increase the VAT rate and whether Parliament acted lawfully.

“It can only be increased after Parliament does it after following a lawful process. It is about making sure democratically elected public representatives of South Africa decide that issue, not the minister.”

Bishop said the announcement by Finance Minister Enoch Godongwana to increase the VAT rate by 0.5% in 2025-26 was premised on the fact that the minister determines the funding needs.

“That is not a decision for the Minister or the National Treasury. It is a decision for Parliament to make. The decision making role is always with Parliament, how much to raise and how to raise and spend it,” he said.

Bishop told the court that the harm caused by a VAT increase, could not be undone.

“It can't close its eyes to consequences of imposing a hike fee,” he said, adding that tax increase will affect the poorest and the middle class.

Bishop also told the court that the draft fiscal report of the standing committee on finance did not include a statement on whether it was accepted or rejected.

“There was just never a actual vote of the fiscal framework as it stands. It has never been to a vote,” he said.

Addressing the court, the EFF's legal representative, Advocate Tembeka Ngcukaitobi said the VAT increase was substantively unconstitutional and the process through which it was adopted was irrational and unconstitutional.

“It has elements of deception,” Ngcukaitobi said on the impression created that the VAT increase will be amended after it comes into effect on May 1.

“It may be politically convenient but public power should not be used deceptively,” he said,

“If a vote is secured through deception, it is still unlawful. We could say it is a matter of politics. Once a report is contaminated, it can't be given legitimacy by court.”

Ngcukaitobi also said the standing committee on finance took a view on VAT that was a regressive measure.

“It also took a VAT increase that exacerbates inequality and adversely affects the poor,” he said, adding that Godongwana and Parliament did not engage in their papers on the EFF argument on that aspect.

He stated that the committee had rejected the zero-rated food items that were meant to cushion the poor from the VAT increase.

“There is clear violation of the constitutional rights and the two organs are responsible for forgetting their constitutional obligations to the poor.”

Ngcukaitobi said the fiscal framework report, which contained 10 irregularities, was brought to the attention of Parliament.

“It approached this task with its eyes open,” he said.

 Advocate Mahlape Sello, representing Godongwana, said his affidavit dealt with matters the EFF raised on deception, saying the party relied on statements made by ActionSA.

“The minister denies those were his statements,” she said.

Sello also said the claims of unconstitutionality on Godongwana’s power to increase Vat were non-existent.

She also said while VAT will be increased on May 1, it was subject to an eventual decision by Parliament.

“Our constitutional provision allows the Minister to make necessary adjustments, subject to parliamentary oversight.”

Sello asked the court, when deciding on the application to interdict the VAT increase, to assess the impact the relief will have.

“The disruption will be entire, the fiscal framework will have to be returned to the Minister to consider another means of addressing the deficit in the budget,” she said.

“It would significantly delay the parliamentary budget adoption process, which means at the start of April, technically government will be without the approved budget and would not be able to fund its obligations,” she said.

Advocate Karrisha Pillay, for Parliament, said the court was tasked to determine the process followed, whether it was lawful and met legislative prescripts.

“Whatever political parties say in the space of politics ought to be areas that the court does not draw inferences from,” she said.

The court reserved judgment after hearing arguments from all the parties involved.

“We do understand that it is a complex issues but it must be decided as soon as possible. We will do our best to give judgment at the latest on the 29th, which is next week Tuesday,” Judge President Nolwazi Mabindla-Boqwana said, adding that the parties would be notified if a judgment will be issued earlier.

mayibongwe.maqhina@inl.co.za