South Africa has decided to withdraw the planned increase in VAT, maintaining it at 15%. This decision follows considerable political opposition and legal challenges against the proposed hike. The potential revenue loss is significant, prompting the ministry to seek adjustments in government expenditure to ensure fiscal sustainability.
On Thursday, the South African finance ministry announced that the planned increase in value-added tax (VAT) will not proceed as previously indicated in the 2025 budget. Originally, there was a proposal to raise VAT by 1 percentage point over two years. However, various political parties expressed strong opposition to this tax hike. Consequently, the VAT will remain at its current rate of 15%.
Finance Minister Enoch Godongwana is expected to introduce a revised Appropriation Bill and Division of Revenue Bill in the coming weeks. The decision to maintain VAT at 15% is projected to result in a revenue shortfall of approximately 75 billion rand ($4.02 billion) over the medium term according to the ministry. They noted, “Parliament will be requested to adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability.”
The coalition government’s major parties, namely the African National Congress and the Democratic Alliance, have disagreed over the VAT increase proposal. This conflict was further complicated by legal challenges to the VAT hike plan, reflecting the contentious nature of fiscal policy in the country.
($1 = 18.6741 rand)
In conclusion, South Africa’s finance ministry has decided against an increase in VAT, retaining the rate at 15% due to opposition from political parties and legal challenges. The anticipated revenue shortfall resulting from this decision signals potential adjustments in government expenditure to sustain fiscal stability. The internal conflicts within the governing coalition highlight the complexities of taxation policy in the nation.
Original Source: www.tradingview.com
