By Tarryn-Leigh Solomons
South Africa’s National Treasury has confirmed that a revised national budget will be tabled on 21 May, with a continued emphasis on stabilising public debt. This follows the government’s decision to reverse its proposed VAT increase – a move with far-reaching legal and economic consequences. Originally intended to raise VAT from 15% to 17, the proposal was withdrawn amid strong opposition in the coalition government. The reversal leaves a projected R75 billion hole in the medium-term fiscal framework, forcing Treasury to consider new revenue streams and potential cuts to government spending.
Jordan Mulindi, Tax Attorney at Latita Africa, emphasises the legal process involved in such fiscal changes. “In South Africa, any change to the VAT rate must be enacted through an act of Parliament, specifically an amendment to the Rates and Monetary Amounts and Amendment of Revenue Laws Act,” Mulindi explains. “While the VAT hike was announced in the Budget Speech, this reversal has not. Parliament must pass the relevant amendment bill before it becomes effective.”
The withdrawal of the VAT increase also affects businesses. Some companies may incur additional costs to reverse pricing structures that had already been updated in preparation for the VAT increase. “Businesses benefit from price stability,” Mulindi notes. “This reversal would foreseeably mean avoiding system updates, contractual adjustments, and potential customer disputes linked to VAT changes.”
Economically, the VAT reversal presents short-term relief for consumers and businesses but poses long-term challenges for public finances. Treasury faces an estimated R75 billion shortfall over the medium term. Without increased VAT revenue, the government will need to revise spending or explore alternative sources of revenue, potentially affecting infrastructure funding, social grants, and national debt.
Mulindi advises taxpayers and businesses to closely monitor upcoming budget announcements and legislative updates. “Treasury has confirmed it will table new Appropriation and Revenue Bills to reflect the unchanged VAT rate and lower expected revenue, and this may signal whether government will cut spending or introduce other tax changes,” he states. “Indicators to watch over the longer term will include revenue collection trends from SARS, economic growth rates, and updates to the Medium-Term Budget Policy Statement.”
While the VAT reversal offers immediate relief, it underscores the complexities of fiscal policy and the need for careful legal and economic consideration in implementing tax changes.
