Finance Minister Enoch Godongwana announced today that the proposed increase in Value-Added Tax (VAT) will not proceed, following significant political opposition and public concern.
The VAT rate will remain at 15%, reversing earlier plans to raise it by 0.5 percentage points in May 2025, with a further 0.5 percentage point increase in 2026 .
The decision comes after intense debate within the Government of National Unity (GNU), where coalition partners, including the African National Congress (ANC) and the Democratic Alliance (DA), failed to reach consensus on the tax hike. The proposed increase faced criticism for its potential impact on low-income households and was met with legal challenges .
To address the resulting revenue shortfall, estimated at R75 billion over the medium term, the government plans to implement significant spending cuts. These adjustments aim to maintain fiscal stability without increasing the tax burden on citizens.
The reversal of the VAT hike has been welcomed by consumer advocacy groups and opposition parties, who argued that the increase would exacerbate the financial strain on South Africans amid rising living costs. However, some economists express concern over the feasibility of achieving the necessary spending reductions without affecting essential public services.
“We welcome Finance Minister Enoch Godongwana’s decision to cancel the proposed 0.5 percentage point VAT hike. In an already pressured economy, where many of our members are under significant strain, this move brings much-needed relief to both consumers and small businesses. For the motor body repair industry, where affordability is a key concern, the decision helps to ease the cost burden on vehicle repairs and parts. It is a positive step towards stimulating consumer confidence and supporting long-term sustainability in our sector.
However, we remain cautious about how government plans to address the R75 billion shortfall, as this could have implications in the longer term. As industry we remain open to collaborating on sustainable solutions,” said Juan Hanekom, National Director of the South African Motor Body Repairers’ Association (SAMBRA)
Minister Godongwana is expected to present revised budget legislation in the coming weeks, outlining the government's strategy to balance the budget while avoiding additional tax increases .
The cancellation of the VAT increase underscores the challenges faced by the GNU in implementing fiscal policies amid diverse political interests and economic pressures.
