3rd March 2025
President Cyril Ramaphosa has put forward a proposal to raise South Africa’s value-added tax (VAT) by 0.5% to 1% in the upcoming 2025/2026 budget. This move aims to resolve disagreements within the Government of National Unity (GNU) over funding critical public services, including wage increases for frontline workers, social grants, and infrastructure projects like commuter rail upgrades.
VAT Proposal and Opposition
The original budget plan included a 2% VAT hike (from 15% to 17%), which Finance Minister Enoch Godongwana argued was necessary to meet fiscal obligations. However, the Democratic Alliance (DA), the GNU’s second-largest party, rejected the increase, warning it would harm economic growth and strain taxpayers. Instead, the DA proposed cost-cutting measures to free up funds, such as:
- Reducing government advertising budgets by 50%.
- Cutting travel and catering expenses for officials by 33%.
- Implementing a hiring freeze on non-essential public sector roles.
- Auditing government payrolls to eliminate “ghost workers.”
The DA also suggested converting the R350 Social Relief of Distress (SRD) grant into a Job Seekers’ Allowance for citizens actively seeking employment.
Tax Compliance Over Tax Hikes
The South African Revenue Service (SARS) has emphasized that improving tax compliance, rather than raising rates, could generate significant revenue. SARS estimates that increasing compliance from 63% to 67% would yield an additional R60 billion annually—equivalent to the revenue expected from the proposed VAT hike. The agency has requested funding to modernize its digital systems, which it claims could recover up to R450–460 billion lost annually to tax evasion.
Budget Implications
Failure to secure additional funding could force the government to scrap the SRD grant, a key component of the ANC’s 2024 election promises. Minister Godongwana’s undelivered budget speech highlighted R3.5 billion in allocated funds for SARS’ modernization efforts, though the agency argues sustained investment is needed to combat tax crime effectively.
Political Standoff
The ANC and DA remain at odds over fiscal strategy. While the ANC insists the VAT increase is unavoidable to fund essential services, the DA maintains that austerity measures and efficient tax collection should take priority. The outcome of this dispute will shape South Africa’s economic trajectory and social welfare commitments in the coming year.
