Key topics:
- VAT set to rise from 15% to 17% starting 1 April 2025 to boost revenue.
- VAT increase is due to higher government spending on health, education, and more.
- Vulnerable households will receive grants and relief to mitigate VAT impact.
Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.
Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.
If you prefer WhatsApp for updates, sign up to the BizNews channel here.
*By Kerry Lanaghan
From 1 April 2025, a 2% increase in the VAT rate will take effect, moving the current 15% VAT up to 17%. With the 2025 Budget outlining a 5.8% increase in consolidated government spending up to R2.6tn, it was necessary for the Treasury to find a way to combat that increase with an increase in revenue.
The 2025 Budget outlines that the increase in expenditure is triggered by new, consistent spending pressures such as health costs, educator costs, childhood development and commuter rail services, as well as ensuring that the country’s debt does not worsen. In the 2025 Budget review, Treasury states that these expenses could not be avoided. At today’s media conference, Finance Minister Enoch Godongwana said, “As we speak, there’s a threat of losing 19 000 teachers in KZN, frontline services are being eroded unless something is done.”
Why specifically is VAT being increased?
- The Budget highlights that the percent of the GDP made up by personal income tax (PIT) in South Africa, as well as the high top tax rate, are both much higher in comparison to other developing countries.
- Treasury states that the previous increases in PIT did not raise the expected revenue, this was due to taxpayers’ change in behaviour in order to avoid tax. Therefore, Treasury argues that a VAT increase is more difficult to avoid and the behavioural responses are lower which decreases the impact on the economy.
- Treasury considered different options to raise the required revenue, such as increases in PIT and CIT. However, these would have had a more negative impact on employment, savings, investment and growth than VAT, because CIT is ultimately paid by shareholders, consumers and workers, even though it is imposed on businesses. South Africa’s contribution of CIT towards tax revenue is already high, and VAT is low in comparison to that of our peers.
- The average VAT amongst peer countries is 19%.
What will be done to combat the effects of the VAT increase?
Is the increase over-burdening the middle class? During today’s press conference, Director General of National Treasury, Duncan Pieterse, emphasised how the middle class will not be overburdened. Pieterse stated that there is no increase in fuel levy to mitigate issues on the transport side, the PIT top four brackets get partial relief, and zero-rating goods benefits everyone even though it targets lower income households. These points indicate that there is an aspect of relief provided to the middle class.
Vulnerable households will receive direct relief from the government by increasing the disability grant, old age grant and child support grant by amounts larger than expected inflation.
There will be an increase in zero-rated items, which will now include tinned vegetables, dairy liquid blends and variety meats.
Road Accident Fund levy and general fuel levy will not be changed in order to limit increases in cost-of-living.
Personal income taxpayers in the bottom two brackets will be provided with full inflationary relief.
Read also:
- BN Briefing: Trump urged to exit SA from AGOA and cut all ties, Iran has NO nuclear energy for SA.
- SA’s economic lifeline at risk: AGOA, U.S. tensions, and the high-stakes fallout – Neil Diamond
- US Congress pulls SA through the gutter in latest letter to President Trump
