VAT increase withdrawn, expenditure adjustments on the cards

While there were indications late last night that political parties were finally making headway on the negotiations around the disputed VAT increase, the National Treasury issued a media statement on the VAT reversal in the middle of the night - at fifteen minutes past midnight to be exact.

Here's the timeline:

10pm - The African National Congress (ANC) issued a statement announcing a media briefing at 10am this morning in Sandton on "the resolution of the fiscal teamwork impasse". It was announced as a joint media briefing by the ANC, Inkatha Freedom Party (IFP), Action SA, Pan African Congress (PAC), Rise Mzansi, BOSA, United Democratic Movement, Good Party, Al-Jamah, Patriotic Alliance, "as parties that have constructively engaged in fiscal framework deliberations". The Democratic Alliance was conspicuously absent from the parties listed.

"In a moment that calls for mature leadership, collaboration and constructive engagement, a number of political parties have demonstrated their resolve to place the national interest above narrow, political point-scoring. These parties have come together to facilitate a principled resolution to the fiscal framework impasse and to uphold the stability and developmental trajectory of South Africa," said Mahlengi Bhengu-Motsiri, national spokesperson for the ANC.

11pm - An hour later, Helen Zille, DA federal council chairperson, issued a statement saying, "The DA can confirm reports that lawyers acting for the Minister of Finance have approached our lawyers proposing an out-of-court settlement, in the matter the DA brought to interdict the VAT increase..."

Read more: VAT’s enough — Godongwana’s powers under scrutiny in high court challenge

Zille went on to say that the DA was awaiting a formal written settlement, and confirmed that a DA delegation was scheduled to meet with a "high-level" ANC delegation today (Thursday, 24 April).

Fifteen minutes past midnight - the National Treasury issued this statement:

"The Minister of Finance will shortly introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill), which proposes to maintain the Value-Added Tax (VAT) rate at 15 per cent from 1 May 2025, instead of the proposed increase to VAT announced in the Budget in March.

The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees. By not increasing VAT, estimated revenue will fall short by around R75-billion over the medium-term.

As a result, the Minister of Finance has written to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill, in order to propose expenditure adjustments to cover this shortfall in revenue. Parliament will be requested to adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability.

The decision not to increase VAT means that the measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited.

To offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward. The Minister of Finance expects to introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks.

The initial proposal for an increase to the VAT rate was motivated by the urgent need to restore and replenish the funding of critical frontline services that had suffered reductions necessitated by the country’s constrained fiscal position. There are many suggestions, however some of them would create greater negative consequences for growth and employment and some of them, while worthwhile, would not provide an immediate avenue for further revenue in the short term to replace a VAT increase.

The National Treasury will, however, consider these and other proposals as potential amendments in upcoming budgets as mechanisms to increase the resources available." DM