VAT will be increased on 1 May. While it is possible that the VAT increase can be withdrawn by Parliament, this will take several months to do, writes Carol Paton.
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Will VAT increase on 1 May?
Yes, VAT will increase on 1 May by 0.5 percentage points to 15.5%. That means for every item costing R100 that is not exempt from VAT, consumers will now pay R15.50 instead of R15 VAT.
Why will VAT increase if Parliament has not agreed and is still debating it?
According to the VAT Act, if the Minister of Finance announces in the National Budget that the VAT rate will change, the change takes effect on the date specified by the minister. In his Budget speech, Finance Minister Enoch Godongwana said the VAT increase will take effect on 1 May.
Can the VAT increase be stopped or changed after the Budget speech?
Parliament can stop the VAT increase if it passes a new Rates and Monetary Amounts Amendment Bill. However, it is too late to stop the VAT increase from going ahead on 1 May, as Parliamentary processes will not be completed by then. The VAT increase can be stopped if and when a new Rates Bill passes through Parliament.
Didn't the ANC agree to a proposal by ActionSA that the VAT increase be scrapped?
ActionSA's proposal to scrap VAT was included in a report to the National Assembly. However, it is only a proposal and not a decision, so it doesn't have any legal weight. The ANC committed to ActionSA to discuss the VAT increases in Parliament's finance committees and explore whether alternatives can be found. Godongwana has said that the report adopted by the National Assembly does not mean that the tax increases will be scrapped; it means only that they are on the table for discussion.
What is Parliament doing now about the VAT increase?
The finance committees will now discuss the tax proposals for the 2025 Budget. This discussion has not started yet and can only get going when Godongwana tables a new Rates Bill in Parliament. This is expected to be tabled in Parliament this week. The Bill will state a 0.5 percentage points increase VAT, and MPs can amend it by a majority vote.
What are the options for amending the Rates Bill?
The 0.5ppt increase is projected to raise R13.5 billion over the 2025/26 financial year. Godongwana has said that if MPs want to remove the VAT increase, they must devise alternative taxation measures to raise the same revenue. This is according to the Money Bills Act, which says the overall amount of revenue as per the fiscal framework cannot be altered. This implies that the overall amount of expenditure also cannot be altered.
ANC secretary-general Fikile Mbalula has written to all parties, inside and outside the government of national unity (GNU), to discuss the Budget. Parties have been called on to make alternative revenue proposals.
Parties are making submissions to the finance committees to be discussed. MPs could propose any other tax, such as an increase in personal income tax, corporate income tax, or the fuel levy. They could also propose a completely new tax, like a wealth or land tax.
How long will all this take?
It could be several months before a new Rates Bill is finalised. Mbalula says he wants consultations with parties done by 6 May. Neither the National Assembly nor the National Council of Provinces has any sittings scheduled until the first week of May. MPs are away on oversight visits and doing constituency work until 22 April, so it is not likely that many committee meetings (which are the precursor to parliamentary sittings) will be held.
Will consumers be refunded for the VAT they paid if Parliament changes the VAT rate after 1 May?
Unfortunately, there is no mechanism to repay consumers for VAT already paid.
What is the DA court case about?
The DA is challenging the Minister of Finance's power to announce VAT increases under the VAT Act, which it says is unconstitutional. It also challenges the legality of the process taken by the Standing Committee on Finance to adopt the fiscal framework, which, at face value, was procedurally flawed. If it goes ahead with the case and wins, the Budget will be sent back to the committee to reprocess. Parliament would also have to amend the VAT Act.
The negotiations on the Budget will also include personal income tax (PIT) bracket adjustments for inflation.
ActionSA and Build One SA (BOSA) voted to get the Budget framework through Parliament on the basis that the VAT increase be removed and that PIT brackets be adjusted for inflation. The Budget did not adjust PIT tax brackets for the second year running. The impact of that is that many of those who received a salary increase at inflation will have their increase eaten up by SARS as the threshold for the tax brackets will effectively kick in at a lower level in real terms.
SARS is projected to raise an additional R18.5 billion in tax revenue by not making inflation adjustments. ActionSA and BOSA want this changed.
However, while the Treasury might be able to substitute the R13.5 billion that would have been raised from VAT, it will be difficult for it to raise R31.5 billion in new taxes.
Suppose the ANC cannot find a solution that ActionSA and BOSA are happy with, and its impasse with the DA over the Budget continues. In that case, it will not be able to pass either the Rates Bill or the next two pieces of legislation related to the Budget: the Division of Revenue Bill (which allocates revenue to provinces and municipalities) and the Appropriations Bill, which allocates money to departments and government agencies.
