Finance Minister Enoch Godongwana has officially withdrawn the 0.5% Value Added Tax (VAT) increase that was due to take effect on 1 May 2025.
Enoch Godongwana reverses VAT hike: Here’s why
This means VAT will remain at 15%, rather than rising to 15.5% as previously announced in his Budget Speech in March.
Godongwana made this decision after intense backlash from opposition parties, particularly the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF), who took the matter to the Western Cape High Court.
Both parties argued that the tax hike would make life more difficult for ordinary South Africans by raising the cost of everyday goods and services.
According to the National Treasury’s statement released on Wednesday night, the decision came after “extensive consultations with political parties” and consideration of recommendations from parliamentary committees.
The Minister also informed the Speaker of Parliament, Thoko Didiza, that he was pulling back the increase.
By reversing the hike, government revenue will fall short by R75 billion over the medium term.
Treasury says Parliament will now be asked to adjust spending plans to make up for this shortfall without threatening the country’s financial health. Additionally, any extra revenue collected by SARS (South African Revenue Service) may be used to cover these gaps in future.
Originally, the VAT hike was proposed as a way to raise money to fund essential services like healthcare, education, and infrastructure. These services had seen budget cuts in recent years, and Treasury believed a tax increase was necessary to restore their funding.
However, opponents in the DA and EFF strongly rejected this approach. They said it was unfair to pass the cost onto consumers, especially poorer households already struggling with the high cost of living.
The DA took legal action, arguing that the minister acted without proper approval from Parliament and violated the constitutional principle that only Parliament has the authority to raise taxes.
What happens next?
Now that the VAT hike is off the table, Godongwana is expected to present a revised version of the Budget.
This will include updated plans on how to spend public money without the expected boost in revenue. In the meantime, the government must relook at spending plans, cancel plans to cushion low-income earners against the impact of the hike, and rethink how to keep the country’s finances stable.
The legal challenge in court is still ongoing. In their court papers, the DA is also questioning whether Godongwana had the legal authority to announce and enforce a tax increase before Parliament had voted on it.
They are asking the court to rule that this kind of decision must always be debated and approved in Parliament first.
As it stands, Treasury has withdrawn the VAT hike plan, but the court battle could shape future rules about how tax changes are introduced in South Africa.
For now, consumers can breathe a sigh of relief: the cost of everyday items will not increase from 1 May — at least not because of VAT.