South Africa Withdraws Planned VAT Hike as Political Opposition Grows

South Africa will not increase its VAT from May 1 as planned, maintaining it at 15%. The decision follows political opposition, notably from the African National Congress and Democratic Alliance. Estimated revenue loss is projected at 75 billion rand, prompting the finance ministry to seek adjustments to parliamentary expenditure. A revised budget proposal will be presented soon.

The South African finance ministry has announced the cancellation of a planned increase in value-added tax (VAT), which was set to take effect on May 1 as per the 2025 budget. Instead of raising VAT by 1 percentage point over two years, the tax will remain at 15%. This decision comes amid opposition from various political parties, particularly the African National Congress and the Democratic Alliance, who have been in disagreement regarding the hike.

Finance Minister Enoch Godongwana is expected to present a revised Appropriation Bill and Division of Revenue Bill in the upcoming weeks. By not implementing the VAT increase, South Africa is anticipated to face an estimated revenue shortfall of around 75 billion rand, equivalent to approximately $4.02 billion, over the medium term.

The finance ministry stated that adjustments to parliament’s expenditure will be necessary to prevent adverse impacts on the country’s fiscal sustainability due to the loss of revenue. There have also been legal challenges concerning the legality of the VAT hike proposal, adding to the political complexity surrounding this fiscal decision.

In conclusion, the South African finance ministry’s decision to withdraw the planned VAT increase reflects ongoing political disagreements and concerns about fiscal sustainability. The retention of VAT at 15% avoids potential shortfalls in revenue, though it underscores the need for careful budgetary adjustments to maintain economic stability. Future legislative proposals will be crucial in addressing the implications of this decision.

Original Source: www.tradingview.com