It is widely believed that the delay of South Africa’s 2025 Budget Speech until March was due to debates surrounding a proposed VAT increase of 1% or 2%
Nothing has been confirmed as yet, but a 2% worst case scenario would increase the VAT rate in South Africa from 15% to a somewhat ridiculous 17%, an unprecedented level for local sales tax.
The Value-Added Tax (VAT) system was introduced to South Africa on September 30, 1991, replacing the previous General Sales Tax (GST), which was more prone to abuse and evasion.
While the GST rate had varied between 4% and 12% over the years, VAT launched at a rate of 10% in 1991, with eight zero-rated food items, including brown bread and maize meal. These were not part of the original proposal but were added ahead of the implementation date.
The zero rating was extended to nine additional food items in April 1993, however, on the same day the general VAT rate increased from 10% to 14%. This significant adjustment was deemed necessary to improve revenue collection in South Africa.
VAT remained at that level for 25 years, finally being increased to 15% in April 2018, when former finance minister Malusi Gigaba attempted to ease South Africa’s fiscal deficit at the time.
A potential increase to 16% or 17% in April 2025 will have a profound effect on South African households, and particularly the poorest of the poor.
This is why a VAT increase remains a huge point of contention among member parties of the Government of National Unity (GNU).
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