Africa-Press – South-Africa. Finance minister Enoch Godongwana has reversed the proposed increase in VAT, which will now remain at 15% after May 1 — requiring spending adjustments and increased tax collection.
“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measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited,” he said in a midnight announcement.
This confirms what Sunday Times learnt from insiders and comes after a weeks-long impasse between government of national unity partners, which saw the DA oppose the increase in court, and the ANC hold marathon meetings with other parties.
Godongwana said: “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, however, estimated revenue will fall short by about R75bn over the medium term.
The Treasury said the minister will ask parliament “to adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability”.
“To offset the unavoidable expenditure adjustments, any additional revenue collected by the SA Revenue Service may be considered for this purpose going forward.”
A revised version of the Appropriation Bill and Division of Revenue Bill will now be presented within the next few weeks, but the minister sounded a note of caution.
“The initial proposal for an increase to the VAT rate was motivated by the urgent need to restore and replenish the funding of critical front-line 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.”
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