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South Africa Faces $4B Revenue Gap After Reversing Planned VAT Hike

Daba Finance/South Africa Faces $4B Revenue Gap After Reversing Planned VAT Hike
BREAKING NEWSApril 24, 2025 at 11:26 AM UTC

TLDR

  • South Africa’s government has dropped plans to raise the value-added tax (VAT) following internal coalition tensions
  • The proposed 1-percentage-point increase over two years was intended to help close a 75 billion rand ($4.02 billion) revenue shortfall
  • Finance Minister Enoch Godongwana will now present revised spending plans via updated Appropriation and Division of Revenue Bills

South Africa’s government has dropped plans to raise the value-added tax (VAT) following internal coalition tensions, the finance ministry said on Thursday. The proposed 1-percentage-point increase over two years was intended to help close a 75 billion rand ($4.02 billion) revenue shortfall.

The African National Congress (ANC), which supported the VAT hike, clashed with coalition partner Democratic Alliance (DA), which argued it would increase pressure on low-income households. The finance ministry confirmed VAT will remain at 15%.

Finance Minister Enoch Godongwana will now present revised spending plans via updated Appropriation and Division of Revenue Bills. Parliament is expected to adjust expenditure to offset the shortfall without compromising fiscal sustainability. Political uncertainty and mixed signals on tax policy risk undermining investor confidence, analysts said. The DA had opposed the budget’s fiscal framework and challenged the tax proposal in court.

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Key Takeaways

South Africa’s decision to reverse a planned VAT hike underscores growing instability within its coalition government and highlights the political sensitivity of fiscal policy in an election year. While the ANC viewed the VAT hike as a necessary step amid weak growth and limited revenue alternatives, the DA positioned itself as a defender of household affordability. The disagreement reflects deeper tensions over spending priorities, governance, and economic reform. The move also complicates efforts to reduce the budget deficit without cutting essential social and infrastructure programs. The National Treasury now faces the challenge of reallocating spending while preserving fiscal credibility. Analysts warn that inconsistent policy signals could affect South Africa’s borrowing costs and investor outlook. With public debt projected to remain above 70% of GDP and interest costs consuming over 20% of revenue, balancing fiscal responsibility with political consensus will remain a central challenge for the coalition government.

South Africa
Economy
VAT Hike
Tax Rate
ANC
Fiscal Policy

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