Small Businesses Brace for Impact as VAT Hike Looms Over South Africa’s Economy

South African small business owners are facing yet another financial storm as the government prepares to raise the country’s value-added tax (VAT). Among them is Ndumiso Madlala, owner of a niche beverage company known for its alcoholic and non-alcoholic ginger beer, Dragonfire Ginger. For Madlala and many others, the VAT hike could seriously impact their ability to stay competitive and profitable.

The National Treasury’s plan is to increase VAT by 1 percentage point over two years, starting May 1, 2025. The tax, currently set at 15%, is a key component of government revenue – but it also directly affects the cost of goods and services. For small-scale businesses like Madlala’s, that presents a serious dilemma: raise prices and risk losing customers, or absorb the cost and eat into already thin margins.

“Big companies can just switch prices at any time… For us, that’s something we can’t do,” Madlala said in a recent interview.

VAT Hike Adds to Economic Struggles

This tax hike comes at a time when South Africa’s economy is already under pressure. Years of unstable electricity supply have weighed heavily on growth, with businesses forced to invest in backup generators and other costly alternatives.

Now, rising electricity and water tariffs, along with global trade tensions and political instability, are compounding the challenges. Households and businesses alike are tightening belts, even as prices climb.

While the government has proposed an expanded basket of zero-rated VAT items to ease the burden on low-income households, many experts argue that this won’t be enough. Middle-income South Africans—already feeling the squeeze—will likely bear the brunt of the VAT increase.

“VAT hikes are never a good idea… they decrease the purchasing power of ordinary South Africans,” warned economist Nomahlubi Jakuja. “We already have high unemployment, and this just adds more pressure.”

A Political Flashpoint

The VAT increase has also exacerbated tensions within South Africa’s fragile coalition government. The pro-business Democratic Alliance (DA), a junior partner to the ruling African National Congress (ANC), opposed the 2025 budget outright—even taking legal steps to try and block it.

The dispute highlights the fragility of South Africa’s first national coalition government, formed after the ANC lost its parliamentary majority for the first time in 30 years. Policy clashes like this one could threaten the longevity of the alliance, raising concerns about governance stability at a critical time.

Entrepreneurial Spirit Remains

Despite the challenges, Madlala is not giving up. His confidence lies in the loyalty of his customer base and the uniqueness of his brand.

“My comfort is the brand that I own, which is Dragonfire Ginger. It’s one of its kind,” he said. “We find that our loyal base of customers comes back for our products all the time.”

Madlala’s story is a reminder of the resilience of small businesses in South Africa — even in the face of uncertainty, shifting policies, and economic headwinds.

{Source: CNBC}

Follow Joburg ETC on Facebook, Twitter , TikTok and Instagram

For more News in Johannesburg, visit joburgetc.com