Godongwana proposes VAT hike of 0.5 percentage points for 2025 and 2026
Finance Minister Enoch Godongwana's new proposal will raise the VAT rate to 15.5 percent and add 28 billion rand to the fiscus in this financial year.
Finance Minister Enoch Godongwana tabled the 2025 budget in the National Assembly in Cape Town on 12 March 2025. Picture: GCIS
CAPE TOWN - Finance Minister Enoch Godongwana has made a new tax proposal to increase value-added tax (VAT) by 0.5 percentage points in this financial year and the same again next year.
This will take the VAT rate to 16% in 2026.
It's the concession he's making after attempting to table a two percentage point increase in February, when the tabling of the national budget was postponed after GNU partners rejected the proposal at an eleventh-hour Cabinet meeting.
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Godongwana's new proposal will raise the VAT rate to 15.5 percent and add 28 billion rand to the fiscus in this financial year.
The value-added tax rate has not been increased since 2018.
While it’s not expected the latest proposal will find any more support from political parties than the original one, Godongwana said there’s no way around it.
"Madam Speaker, this decision was not made lightly. No minister of finance is ever happy to increase taxes. We are aware of the fact that a lower overall burden of tax can help to increase investment and job creation and also unlock household spending power."
Godongwana said that a VAT increase was indispensable to raise the revenue needed to fund health and education needs.
"We have, however, had to balance this knowledge against the very real, and pressing, service delivery needs that are vital to our developmental goals and which can not be further postponed."
As a trade-off, the fuel levy, personal and corporate taxes remain untouched.
To counter the VAT increase, the number of tax-free goods will be expanded and social grants will also be upped above inflation, although by less than previously proposed.
Treasury said previous increases to personal income taxes did not raise revenue as expected and instead led to taxpayers dodging tax.
The reduced VAT increase proposal has been partially offset by reducing the allocation to the contingency fund from eight billion rand proposed in February to five billion rand.