South Africa scraps controversial VAT hike

Finance Minister Enoch Godongwana has scrapped the 0.5% Value Added Tax (VAT) hike that was set to kick in on May 1. VAT will remain at 15%.

The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees, the National Treasury confirmed in a statement on Wednesday night.

By not increasing VAT, the estimated revenue will fall short by around R75 billion over the medium-term, his ministry said.

According to Treasury, Godongwana has also written to the Speaker of the National Assembly Thoko Didiza, informing her that he is withdrawing the plan.

It added that 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measures to cushion lower-income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited.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 statement reads.

However, Godongwana will introduce a revised version of the budget without the VAT increase.

The initial proposal for a VAT hike was motivated by an urgent need to restore the funding of the frontline services that had suffered reductions.

First published by IOL