South Africa’s VAT will increase from 15% to 16% by April 2026, phased in with the first rise to 15.5% on May 1, 2025. The increase aims to generate R13.5 billion for public services, despite opposition concerns regarding consumer impact. Personal tax brackets will not be adjusted for inflation, contributing to increased tax burdens. The government faces economic challenges, needing to balance revenue generation with public acceptance amidst a weak economic outlook.
The South African government has announced a phased increase in value-added tax (VAT), set to rise from 15% to 16% by April 2026. Finance Minister Enoch Godongwana introduced this plan during the 2025 Budget Speech, detailing that the increment will occur in two stages: first to 15.5% on May 1, 2025, followed by the full increase to 16% on April 1, 2026. This change is anticipated to generate an additional R13.5 billion ($736 million) for the 2025/26 financial year to address the fiscal deficit and support vital public services.
Opposition parties, particularly the Democratic Alliance (DA), have expressed resistance to the VAT hike, voicing concerns over its potential impact on consumers, who already endure a rising cost of living. DA leader John Steenhuisen criticized the government for not considering alternatives, such as asset sales and reducing wasteful spending, before resorting to increased taxes. To mitigate the impact on low-income households, the government plans to expand zero-rated VAT items beginning May 2025, which will include essential goods like tinned vegetables and various meats.
The VAT increase is compounded by the government’s decision not to adjust personal income tax brackets for inflation, resulting in “bracket creep.” This policy is predicted to push workers with inflation-linked salary increases into higher tax brackets, increasing their overall tax burden and potentially generating an additional R18 billion ($981 million) in revenue. Additionally, excise duties on alcohol and tobacco will see increases of 6.75% and 4.75% respectively, although fuel levies will not change to prevent extra financial pressure.
The announcement of the budget faced delays; it was postponed from its original February date to March 12, marking the first such delay in 31 years and highlighting the ongoing challenges within the coalition government. With South Africa’s economic outlook showing weakness, the Treasury has reduced its growth forecast for 2025 to 1.9%, following poor performance in 2024 primarily in transportation and agriculture sectors.
The government aims to stabilize gross loan debt at 76.2% of GDP by 2025/26 and reduce the budget deficit from 5% this year to 3.5% by 2027/28. However, debt servicing remains a significant burden, requiring R389.6 billion—more than is allocated for health, policing, and education combined. Striking a balance between generating revenue for essential services and addressing the economic strain on citizens will be crucial moving forward, especially amid rising political tensions and slow growth prospects.
The South African government will implement a VAT increase from 15% to 16% by April 2026 in an effort to close the fiscal deficit and fund public services. Opposition parties express concern over the impact on consumers, emphasizing the need for alternative revenue strategies. The budget delays underscore the complications within the coalition government as South Africa grapples with economic challenges, necessitating a careful balance between fiscal responsibility and the economic pressures faced by citizens.
Original Source: thecondia.com
