South Africa’s budgets sparks controversy over VAT hike

On March 12th, weeks after the expected budget announcement deadline, South Africa’s Finance Minister Enoch Godongwana finally delivered it—but not without controversy surrounding VAT.

The primary point of contention is a proposed increase in value-added tax (VAT), as reported by Africa News.

This increase has sparked concern among some political parties in the coalition government, who argue it will disproportionately affect the poor.

Initially, the government suggested a larger VAT increase, but this was met with strong criticism and ultimately rejected.

Godongwana now proposes a VAT increase of half a percentage point in 2025/2026, followed by another half-point the next year, bringing the VAT rate to 16% by 2026/27.

This is half the increase originally suggested three weeks ago, but it has still been rejected, according to Africa News.

While the VAT increase has dominated the debate, Godongwana emphasised that the larger issue is how to grow the economy for the benefit of all South Africans.

“A bigger, faster-growing economy and the larger fiscal resources that come with it would give us more fiscal room to meet more of our development goals. But the truth is that our economy has stagnated for over a decade,” said Godongwana.

Other key aspects of the budget include a slightly improved growth forecast, a narrowing fiscal deficit, and increased infrastructure spending.

As the budget has sparked mixed reactions and division, Godongwana will need support from various political parties for its approval.

However, this seems challenging at present, as the second-largest party in the coalition, the Democratic Alliance, which opposes tax hikes, is calling for a comprehensive revision of government spending.

The controversy of the VAT hike in South Africa’s budget appears to indicate that the finalisation of the budget itself will prove difficult.

The final approval of the budget represents the biggest test yet for the unstable coalition government, formed after the ANC lost its parliamentary majority for the first time since the end of apartheid in 1994.

The final budget will be voted on near the end of May.

Africa News.