Finance Minister Enoch Godongwana has officially abandoned plans to increase VAT, keeping the rate at 15% following months of public opposition and legal challenges. The announcement came early Thursday morning after midnight, marking the end of a contentious debate over the proposed tax hike.
The Treasury confirmed that Godongwana will introduce legislation to reverse his earlier proposal, which would have raised VAT by 0.5 percentage points starting May 1, followed by another 0.5-point increase in April 2026.
In a statement, the Treasury said the decision followed “extensive consultations with political parties” and consideration of recommendations from parliamentary committees. However, the reversal will leave a significant gap in government revenue, with an estimated R75 billion shortfall over the medium term.
The proposed increase had faced strong public backlash since it was first announced, with critics arguing it would disproportionately affect low-income households. Legal challenges were also mounted against the hike, adding pressure on the government to reconsider.
Godongwana briefed the media on the decision Wednesday at the Imbizo Media Centre in Cape Town, though no further details were provided on how the Treasury plans to address the revenue shortfall. The move signals a significant shift in fiscal policy as the government seeks to balance economic pressures with public sentiment ahead of upcoming elections.
The VAT rate has remained at 15% since a controversial 1 percentage point increase in 2018, which was implemented under then-Finance Minister Malusi Gigaba. This latest reversal spares consumers additional financial strain amid ongoing cost-of-living challenges.
Analysts expect the Treasury to present alternative revenue-raising measures in the coming months to compensate for the lost VAT income. The decision has been welcomed by opposition parties and civil society groups, though some economists warn it may complicate long-term budget stability.
Government officials have yet to comment on whether spending cuts or other tax adjustments will be introduced to offset the R75 billion gap. The Finance Minister is expected to provide further details in upcoming parliamentary discussions.
