The Western Cape High Court has officially suspended the planned increase in value-added tax (VAT) in South Africa, just days before it was set to take effect. The court ruling, issued on Sunday, April 27, 2025, halts a 0.5 percentage point increase scheduled for May 1, 2025, and a second increase of the same amount set for April 2026, pending the passage of legislation that would regulate the VAT rate.
This decision comes after a legal challenge brought by the Democratic Alliance (DA), which argued that the VAT increase lacked the necessary parliamentary approval. The court's ruling not only suspends the VAT hike but also invalidates the resolutions of both the National Assembly and the National Council of Provinces regarding the 2025 Fiscal Framework report.
Finance Minister Enoch Godongwana had initially proposed a more substantial VAT increase of two percentage points in the 2025/26 National Budget, but faced significant backlash from opposition parties and the public. Following this resistance, he revised the proposal to a 1% increase, split into two half-percentage-point increments. However, with the court's recent ruling, the VAT rate will remain at 15%.
In a statement released by the National Treasury, Godongwana expressed his approval of the court's decision, stating it aligns with his prior announcement to suspend the VAT increase. "Minister Godongwana maintains that his initial budget proposal of March 12, 2025, was constitutional and appropriate given the limited options available to balance fiscal sustainability with service delivery needs," the statement read.
Despite the suspension, the withdrawal of the VAT increase creates a projected revenue shortfall of approximately R75 billion, which could lead to a reduction in government expenditure and potentially impact service delivery. Godongwana emphasized that alternative measures would be sought to ensure sustainable public finances.
In light of the court's order, the South African Revenue Service (SARS) has warned consumers to be vigilant against businesses that might attempt to charge the now-suspended increased VAT rate of 15.5%. SARS Commissioner Edward Kieswetter urged vendors to adjust their systems back to the correct VAT rate of 15% and advised consumers to report any discrepancies at the point of sale.
"The court's order suspends the 0.5 percentage point increase that was originally announced to come into effect on May 1, 2025, and there is, therefore, no basis for VAT vendors to implement an increase in the VAT rate," Kieswetter stated. He welcomed the clarity provided by the court order, which he believes will enable SARS to administer the VAT Act more effectively.
DA Federal Council Chair Helen Zille hailed the court's ruling as a significant victory for South Africans, asserting that it ensures any changes to the VAT rate must receive proper parliamentary approval before being enacted. "We are pleased that the Minister of Finance eventually came back to the table and agreed to suspend the VAT increase in a lawful manner. This shows that government decisions cannot be made without proper oversight," Zille remarked.
The court's decision has put an end to weeks of uncertainty surrounding the VAT increase, which had been a contentious topic among political parties. The DA and the Economic Freedom Fighters (EFF) had taken legal action against the proposed increase, and the court's ruling confirms their right to continue pursuing the matter to declare the VAT Act unconstitutional.
In his affidavit submitted to the court, Godongwana maintained that the proposed VAT increase was deemed less harmful to economic growth and employment than other alternatives considered by the National Treasury. However, recognizing the lack of support for the proposal in Parliament, he opted to withdraw it.
Ultimately, the Western Cape High Court's ruling serves as a reminder of the importance of legislative oversight in government decision-making processes. As South Africans breathe a sigh of relief over the suspension of the VAT increase, the focus now shifts to how the government will address the resulting fiscal challenges while maintaining essential services.
