Ramaphosa Gives No Promises on Scrapping VAT Hike as Treasury Explores Alternatives

President Cyril Ramaphosa has made it clear that while the National Treasury will examine alternatives to the planned VAT increase for 2025, there are no guarantees that the hike will be scrapped.

Addressing the concerns raised by various political parties and stakeholders, Ramaphosa acknowledged the recommendation made by the finance committee to find a solution within the next 30 days. However, he emphasized that there is no certainty that the VAT increase can be avoided, given the current fiscal constraints.

“The resolution that was taken by the finance committee is that there will be a 30-day period during which Treasury will examine whether there are other options other than the VAT that can fill the gap of about R13.5 billion,” Ramaphosa said.

Despite the committee’s recommendation, which is non-binding, Treasury has already indicated that the VAT increase is likely to proceed unless substantial alternative sources of revenue can be found to make up for the R13.5 billion shortfall in the budget.

The Budget Drama: A Narrow Victory for the ANC-led Government

The budget drama reached a climax last week when the ANC-led Government of National Unity (GNU) managed to pass the 2025 fiscal framework through the National Assembly with a narrow majority. The Democratic Alliance (DA), South Africa’s second-largest opposition party, voted against the budget, opposing the planned VAT hike.

The DA had even pushed for a formal amendment to the budget in the Standing Committee on Finance, but the ANC, IFP, and Action SA rejected the proposal, opting instead to approve the framework as-is, including the VAT increase.

The 30-Day Window

With the 30-day window now in place for Treasury to explore alternatives, Finance Minister Enoch Godongwana has made it clear that the VAT hike remains part of the budget unless an alternative can be identified. Godongwana highlighted that even if alternatives are proposed, implementation will take time, making it unlikely that they would be in place before the VAT hike is scheduled to take effect on May 1, 2025.

“We are not ruling out alternatives, but they would have to be examined carefully, and the clock is ticking,” Ramaphosa added.

No Quick Fix: Legal Challenges and Proposals

Legal experts have noted that the only way to stop the VAT increase for 2025 would be to rewrite South Africa’s tax laws, a process that cannot be completed before the May 1 deadline. Big banks, mobile operators, and insurers have already factored the VAT hike into their pricing models, notifying clients of the impending increase.

The Road Ahead

As the budget continues its march through parliamentary processes, the Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill was gazetted last Friday, containing the VAT hike. The bill will soon go back to the finance committee before being voted on by the National Assembly on May 6, 2025.

While Ramaphosa has reassured the public that alternatives are being explored, it seems increasingly clear that the VAT increase is set to remain a key feature of the 2025 fiscal framework unless a drastic and immediate solution is found within the next month.

No Promises, Just Proposals

As of now, no promises have been made to scrap the VAT increase. South Africans can expect a detailed report from Treasury after the 30-day review, but for now, it appears that the VAT hike will move forward unless a significant shift occurs in the budget process. The next few weeks will be crucial in determining whether South Africa can find a way to meet its fiscal obligations without burdening citizens with a higher VAT.

{Source BusinessTech}

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