South Africa is bracing for a new budget battle as parliamentary parties reject Finance Minister Enoch Godongwana’s proposed VAT increase, despite revisions aimed at scaling back the initial hike.
The core of the contention lies in the proposed value-added tax (VAT) increase, intended to bolster state revenue. The government initially proposed a 0.5% VAT increase set to take effect on May 1, 2025, with an additional 0.5% increase planned later, ultimately raising the VAT to 16% by 2026/27. This measure is projected to generate an additional 28 billion rand ($1.53 billion) in revenue for the fiscal year.
However, the Democratic Alliance (DA) and other major parties have voiced strong opposition, despite evidence of marginally improved growth forecasts, a narrowing fiscal deficit, and increased infrastructure spending. 
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Critics argue that increasing taxes, particularly VAT, will disproportionately affect South Africa’s poor and could further destabilize an already fragile economy. The proposed VAT increase is part of a broader effort to address South Africa’s significant budget deficit, which currently stands at R258 billion, or -5% of GDP . Debt-service costs have also risen to R389.6 billion for 2024/25, further straining public finances.
The government insists that macroeconomic stability, supported by sound fiscal policy, is crucial and that these tax measures are necessary to achieve it . The revised plan aims to generate R13.5 billion in tax revenue through the VAT increase.
The rejection of the VAT increase highlights the ongoing struggle to balance fiscal responsibility with the socio-economic needs of South Africa’s population. As political parties remain at odds, the future of the 2025 budget hangs in the balance, raising concerns about the country’s economic trajectory.
