ANC Set to Scrap VAT Hike After Backlash From Unity Government Partners

The African National Congress (ANC) appears ready to abandon its controversial plan to increase South Africa’s value-added tax (VAT) by 0.5 percentage points, following strong resistance from both its coalition partners and opposition parties in parliament.

According to a senior ANC leader quoted by the Sunday Times, it became evident during budget negotiations last week that there was insufficient political support to push the VAT hike through. Several parties, including those within the Government of National Unity (GNU), signaled they would vote against the increase.

Political Fallout in a Fractured Coalition

The GNU — formed after the May 2024 general elections stripped the ANC of its parliamentary majority for the first time since 1994 — is already showing signs of strain. The Democratic Alliance (DA), the ANC’s largest partner in the unity government, recently voted against a key budget bill, highlighting growing tensions within the alliance.

Despite the opposition, the ANC managed to pass the bill by securing the support of smaller parties not formally part of the GNU. However, the fallout has left Finance Minister Enoch Godongwana in a precarious position, now under pressure to find alternative revenue sources to fill a R13.5 billion budget shortfall.

Why the VAT Hike Was on the Table

The proposed VAT hike was part of Treasury’s efforts to close the fiscal gap without resorting to further borrowing. A 0.5 percentage point increase would have pushed VAT from 15% to 15.5%, drawing widespread criticism over its potential impact on working-class households already battling inflation and high unemployment.

The pushback from political parties — including those outside the GNU — reflects broad concern over the regressive nature of VAT increases, which tend to hit the poor the hardest. Critics argued that such a move would only deepen inequality and social discontent.

What Happens Next?

With the VAT plan off the table for now, the ANC and Treasury must return to the drawing board. Options may include increased sin taxes, public sector wage restraint, cutbacks in government spending, or better efficiency in state-owned enterprises.

Analysts also warn that persistent friction within the GNU could hamper urgent reforms needed to stabilise South Africa’s economy and restore investor confidence.

A Budget at a Crossroads

The withdrawal of the VAT proposal signals the growing difficulty the ANC faces in governing without a clear majority. As the GNU continues to be tested, South Africa’s fiscal policy and economic trajectory remain in uncertain territory.

With Finance Minister Godongwana under pressure to present a revised strategy, all eyes will be on how the ANC manages to balance public service funding with the need to rein in debt — without pushing the burden onto already struggling South Africans.

{Source: Money Web}

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