South Africa will not increase its VAT rate from 15% as planned, according to the finance ministry. Originally, a 1 percentage point hike was proposed, but political opposition led to its withdrawal. This decision is expected to cause a revenue shortfall of about 75 billion rand over the medium term, necessitating expenditure adjustments in Parliament.
The South African finance ministry declared that there will be no increase in value-added tax (VAT) as initially proposed for May 1, 2025. Originally, the National Treasury aimed to raise VAT by 1 percentage point over a two-year period, but opposition from political parties prompted the change. The VAT rate will remain at 15%.
Finance Minister Enoch Godongwana is expected to present a revised version of both the Appropriation Bill and the Division of Revenue Bill in the upcoming weeks. The decision to maintain the current VAT rate is projected to lead to an estimated revenue shortfall of around 75 billion rand ($4.02 billion) over the medium term.
To compensate for this loss, the ministry indicated that Parliament would be asked to adjust expenditures to ensure fiscal sustainability. The proposal to increase VAT had faced significant opposition within the coalition government, particularly between the African National Congress and the Democratic Alliance, and had even been subjected to legal scrutiny.
In summary, South Africa has decided against the planned increase in VAT, keeping it steady at 15%. This decision, influenced by political opposition, will result in a projected revenue loss of approximately 75 billion rand. Moving forward, revisions to budgetary bills will be made to ensure responsible fiscal management despite this revenue shortfall.
Original Source: www.tradingview.com
