The Minister of Finance, Enoch Godongwana, announced this morning that the proposed 0.5% Value-Added Tax (VAT) rate hike would be withdrawn.
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After a two-month-long battle, the Ministry of Finance announced that the proposed 0.5% Value-Added Tax (VAT) rate hike would be withdrawn.
The VAT rate was expected to rise from 15% to 15.5% on May 1. The proposed increase was announced during the Budget Speech in March.
In a statement this morning, the ministry said the decision to forgo the increase followed extensive consultations with political parties and careful consideration of the recommendations of the parliamentary committees.
The ministry, however, said that by not increasing VAT, estimated revenue would fall short by around R75 billion over the medium term.
They said as a result, the Minister of Finance, Enoch Godongwana, wrote to the Speaker of the National Assembly to indicate that he was withdrawing the Appropriation Bill and the Division of Revenue Bill, to propose expenditure adjustments to cover this shortfall in revenue.
“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 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measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited.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 offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward. The Minister of Finance expects to introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks,” read the statement.
The ministry said 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.
“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.
“The National Treasury will, however, consider these and other proposals as potential amendments in upcoming budgets as mechanisms to increase the resources available.”
In a statement, the Democratic Alliance (DA), said the development marked a major victory for the political party and a turning point in the fight to protect South Africans from unjustified financial burdens.
“After steadfast opposition by the DA, lawyers acting on behalf of the Minister of Finance approached the DA’s legal representatives with a proposal for an out-of-court settlement. This follows the DA’s application to interdict the VAT increase, which the party has opposed from the outset on the grounds of its impact on already struggling South African households.”
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