South Africa’s VAT Reversal Sparks Legal Confusion and Budget Chaos

South Africa’s attempt to reverse its planned VAT increase has turned into a legal and economic minefield, as experts warn that Finance Minister Enoch Godongwana’s announcement may not be legally enforceable.

On 24 April, Godongwana said the government would withdraw the 0.5 percentage point VAT hike—initially set to raise the tax from 15% to 15.5% on 1 May—and table a revised Rates and Monetary Amounts and Amendment of Revenue Laws Bill (Rates Bill) without the change. This move was accompanied by the withdrawal of related budget bills to reflect the revision.

However, legal and economic experts say this backtrack is far from straightforward.

Legal Framework Already Locked In

According to legal expert and law lecturer Benjamin Cronin, the biggest issue lies in the fact that Parliament has already adopted the fiscal framework that includes the VAT hike.

“Under Section 7(4) of the VAT Act, the finance minister can announce a VAT change during the budget speech—but there’s no clear legal mechanism to reverse that after the fact,” Cronin explained. “Simply tabling a new Rates Bill doesn’t undo what Parliament has already approved.”

Cronin and other experts argue that the only legally effective way to halt the hike before 1 May would be through a court order.

Bartho van Tonder, director at Thomson Wilks Attorneys, echoed this sentiment: “Just because a new Rates Bill has been introduced doesn’t mean the VAT hike has been successfully scrapped. Legally, we’re still on course for 15.5%.”

Business and Consumer Confusion

The sudden change has left businesses scrambling. Many had already updated their billing systems and pricing to accommodate the higher VAT rate. Now, some have begun reversing those updates—uncertain of what rate to apply.

Zinhle Tyikwe, CEO of the Consumer Goods Council of South Africa (CGCSA), called for greater clarity:
“While we acknowledge the Minister’s statement, clarity is still required on when the legislation to reverse the VAT hike will be passed. Businesses have incurred significant costs preparing for the change—only to now face more costs undoing that.”

The CGCSA warned that these types of late-stage government shifts can create damaging financial burdens and long-term uncertainty for both business and consumers.

Budget Breakdown: Is a Full Reset on the Cards?

Economists say the problem runs deeper than the VAT issue. The decision to withdraw and amend the Rates and Appropriations Bills may result in a full reset of the national budget for 2025.

According to the Bureau for Economic Research (BER), the current fiscal framework—passed narrowly in Parliament—sets fixed revenue and spending guidelines. If those figures change, a new fiscal framework will need to be developed and reapproved.

Ironically, several parties—including ActionSA and BOSA—voted in favor of the original framework with the VAT hike, hoping to avoid a full budget reset. But it appears that’s exactly what is now required.

Treasury has also indicated that expenditure cuts will be necessary to make up for the revenue lost from scrapping the VAT hike—an admission that the existing fiscal plan is no longer viable.

One Small Step Back from the Brink

Despite the chaos, the South African Revenue Service (SARS) has taken steps to minimize confusion by removing all VAT increase documentation. It has archived its official guides and FAQs referencing the 15.5% rate.

While this doesn’t legally cancel the tax hike, it does signal a shift in direction from the enforcement arm of the state.

What Happens Next?

With just days to go before the planned VAT hike, the future of South Africa’s tax policy remains uncertain. Without swift legislative action—or a court ruling—the hike could still legally go ahead.

Meanwhile, Treasury, Parliament, and the courts face a race against time to either pass new laws or issue a clear directive on what businesses and consumers should expect.

For now, South Africans are left in limbo—waiting for the government to clear the fog it created.

{Source: IOL}

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