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IOL News
27-04-2025
- Business
- IOL News
Finance Minister's decision to withdraw VAT increase brings relief to consumers
Finance Minister Enoch Godongwana announced this past Thursday that the National Treasury will no longer be implementing the controversial 0.5 percentage points increase in the value-added tax (VAT). South Africans celebrated Finance Minister Enoch Godongwana announcement made this past Thursday that the National Treasury will no longer be implementing the controversial 0.5 percentage points increase in the value-added tax (VAT) from 1 May, which was proposed in the National Budget to plug the R58 billion fiscal deficit. His decision marks a significant victory for financially constrained consumers and highlights the government's responsiveness to widespread pushback and legal challenges, even from its own coalition partners within the Government of National Unity (GNU). Godongwana had last month proposed to increase the VAT from 15% to 15.5% from 1 May, and to 16% a year later, after his Budget Speech was unexpectedly postponed at the eleventh hour in February when he proposed to increase VAT by a once-off 2 percentage points. Instead, Treasury on Thursday said Godongwana will shortly introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill, which proposes to maintain the VAT rate at 15%. Debt Rescue CEO Neil Roets, welcomed the withdrawal, calling it a vital and timely relief for South African consumers facing immense financial strain. "The VAT hike, originally scheduled to take effect on 1 May 2025, sparked significant legal and public opposition, ultimately leading to its reversal. I hope that this decision signals a growing awareness within government of the economic pressures facing consumers. With a steep electricity tariff hike already implemented on 1 April, a VAT increase would have further strained household budgets and pushed many families to breaking point,' he said. Frank Blackmore, lead Economist at KPMG, told Business Report that the VAT U-turn was down to mainly two reasons. "The first reason was obviously the social backlash that was received on this proposal and the second was that the revenue authorities managed to collect an extra sort of R10 billion from the previous year. Therefore, there was no need to institute a vat hike to get this additional revenues," Blackmore said. "Even in the planning, the additional revenues that would have come from this half a percentage point of our time could have been around R13.5 billion but if you take the zero rated goods into account that reduces to around this R10 billion making it a moot point for this budget. I think it's important to note that South Africa is also facing a lot more stress given the pressures put on it and by the global trade war that is currently ongoing," Blackmore said. 'This proves that the funds could have been sourced without adding pressure to consumers,' Roets said. Roets added that the revised budget has strengthened SARS's capacity to close the tax gap and improve compliance. 'With enhanced support, SARS is now better positioned to pursue overdue taxes from corporates, high-net-worth individuals, and those whose declared income does not align with their financial activity,' Roets added. The Debt Rescue CEO further stressed that it must be the start of a broader shift in government's fiscal approach. He urged policymakers to adopt longer-term measures to support consumer resilience, including: Reducing wasteful government spending and reallocating funds to essential services without increasing the tax burden on consumers. Expanding the list of zero-rated VAT items to include more basic goods that are part of daily household consumption, such as hygiene products and school supplies. "We urgently appeal to South Africa's major food retailers to consider a different approach to the pricing structure of essential items, as many families are finding it increasingly difficult to afford basic necessities. The ongoing rise in the cost of living, particularly food, is placing severe strain on households that already allocate most of their income to groceries. A revised, more accessible pricing model on staple goods could go a long way in helping consumers manage. We ask retailers to re-evaluate their current strategies in light of this crisis, and to explore ways to ease the pressure on everyday shoppers. South Africans cannot continue to absorb the consequences of fiscal shortfalls. This decision is a meaningful step in the right direction, but sustainable relief will require a consistent focus on efficient public finance management and consumer protection,' Roets said. Meanwhile, Blackmore added that the next item from the Minister's budget that will be adjusted is the growth rate for this year for South Africa. Blackmore said, "The growth rate for this year for South Africa was at 1.9% but given the events in the US of the imposition of tariffs as well as our local missteps in terms of policy and management, I think we'll be lucky to get close to that 1% growth this year. Therefore, expectations of revenue would be paid back along with that growth rate for this particular year. I think it's also important that with the cancellation of this proposed vat hike that the extra money is found through expenditure, savings, and on unnecessary areas of expenditure and does not come importantly from service delivery which is relied on by most South Africans in terms of health, education, social grants and other public sector delivery that is expected." "I think it is vital for that to happen that costs or cut and expenditures is left alone in order to create some kind of momentum in terms of economic growth in future," Blackmore said. BUSINESS REPORT
The Citizen
25-04-2025
- Business
- The Citizen
Practical implications of reversing the 0.5% VAT increase
All shops and other entities that charge VAT had to quickly get their systems ready for the VAT increase and must now reverse the process. The decision by finance minister Enoch Godongwana to reverse the VAT increase of 0.5% that was supposed to come into effect on 1 May as well as the 0.5% increase next year, has several practical implications. Edward Kieswetter, commissioner of the South African Revenue Service (Sars), says the decision has significant practical implications for VAT vendors and consumers and that Sars will ensure the necessary adjustments are made to accommodate this change. He also acknowledges that vendors and consumers have invested in preparing for an increase in VAT during a period of uncertainty from Parliament's deliberations and public comments. ALSO READ: Budget 3.0 not unexpected, possible decrease in social grant increase Measures for VAT vendors from 1 May According to the media statement announcing the reversal of the VAT increase and Government Notice No 6157 of 24 April 2025 published in the Government Gazette introducing the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill, these measures will apply to all VAT vendors with effect from 1 May 2025.: VAT vendors who have not implemented the change in rate must stop all development in this regard. Vendors are expected to charge VAT at the rate of 15% and not 15.5% for the relevant goods and services according to the VAT Act. Vendors can use limited time to adjust their systems accordingly and report and pay the VAT. Vendors who are unable to revert to the 15% rate due to complex system changes that may be needed must report and account for supplies and purchases at the 15.5% rate until they are able to make the necessary system adjustments which should be completed no later than 15 May 2025. VAT transactions charged at 15.5% must be reported in field 12 (for output tax) and field 18 (for input tax) of the VAT return. Adjustments in the form of refunds of the 0.5% rate to customers and from suppliers must equally be reported in fields 12 and 18. The VAT return declarations will be taken into consideration when verifications and/or audits on the affected VAT tax periods are conducted. The VAT returns submitted must continue to calculate the VAT auto calculation using the 15% rate from tax periods or months commencing 1 May 2025. Vendors who have already implemented both the rate changes and the zero-rating are encouraged to reverse those changes before 1 May. ALSO READ: A R1 billion U-turn: Scrapping the VAT increase leaves no winners, just absolute chaos Complexity and confusion around VAT increase Kieswetter says he understands the complexity and confusion that resulted from this process. 'Sars will do its best to provide further clarity to create certainty of obligation for all vendors.'
BBC News
24-04-2025
- Business
- BBC News
South Africa reverse controversial VAT increment - wat next?
South Africa don reverse dia controversial proposed value added tax increase just days bifor e suppose take effect. Dis VAT increase wey South Africa Finance Minister Enoch Godongwana announce for March 2025 during di budget speech cause serious political battle between parties for di coalition govment. Plenti South Africans no support di announcement of di VAT increase - dem tok say e go add to di hardship wey dem dey face. Di proposed VAT increase na to add 0.5 percent by 1 May 2025 den followed by anoda 0.5 percent increase by 1 April 2025. But now, di Finance Minister for South Africa don announce di cancellation of di proposed VAT, in a statement dated 24 April 2025. According to di finance minister, e say oda tax increases or public spending cuts fit follow. "Di Minister of Finance go shortly introduce di Rates and Monetary Amounts and di Amendment of Revenue Laws Bill (Rates Bill) wey dey propose to maintain di Value-Added Tax (VAT) rate at 15 per cent from 1 May 2025, instead of di proposed increase to VAT wey dey announced in di Budget for March," di statement tok. Di reversal of di VAT hike go likely welcome news for many South Africans, most of dem dey alreadi burdened by di rising cost of living. Finance Minister Godongwana bin dey advocate for di VAT increase from 15 to 15.5 percent, wey e argue say e go help di most vulnerable citizens from di effects of oda tax measures. Di Finance ministry warn say di effect of dis new move fit mean a revenue shortfall of about R75 billion (roughly $400 million) ova di medium term. How di VAT increase take come On Wednesday 12 March 2025, Minister Godongwana deliver di 2025 Budget Speech for di National Assembly temporary Chamber in di presence of di parliament members wey dey made up of opposition parties as well as President Cyril Ramaphosa wia e announce increase in VAT, infrastructure spending among oda economic issues. Godongwana bin outline all di financial, economic and social commitments wey di govment want for im expenditure as well as govment spending and proposals for revenue collection wey govment wan use fund di economy. Bifor today speech presentation, dem bin don postpone di presentation two weeks bifor, sake of complain ova di proposed VAT increment. According to di budget speech presentation by di finance minister, govment go increase VAT by half-a-percentage point for di first year and anoda increase go happen for di following year. Di VAT go increase by 0.5% from 1 May 2025 den followed by anoda 0.5% on 1 April 2026. "To raise di revenue needed, di govment don propose to increase di VAT rate by half- a- percentage point for 2025/2026, and by anoda half-a-percentage point for di following year. "Dis go bring di VAT rate to 16 per cent for 2026/27." Wen di finance minister announce dis, noise bin start for di parliament as some members disagree and di minister get to explain imsef more. Na di speaker later try calm di situation bifor dem allow am to continue to read im speech. According to Minister Godongwana, e say to borrow or additional debts no go dey affordable for di South Africa economy and na VAT wey affect everybody, na im be di effective way to fit fund di spendings of di govment. Why di VAT reversal According to di statement from di Finance Ministry in South Africa, di decision to reverse di VAT increase na afta consultations wit political parties and parliamentary committees. Di statement add say, di Minister of Finance don write to di Speaker of South Africa National Assembly say e wan withdraw di Appropriation Bill and the Division of Revenue Bill. "Di decision to let dis increase go follow extensive consultations wit political parties, and careful consideration of di recommendations of di parliamentary committees. "By not increasing VAT, estimated revenue go fall short by around R75 billion ova di medium-term. Di ministry add say di Parliament go gatz adjust expenditure so dat revenue losses no go harm South Africa economy. Sake of di VAT reversal, di ministry say expenditure adjustments fit lead to additional revenue and di Minister of Finance go introduce a revised version of di Appropriation Bill and Division of Revenue Bill within di next few weeks. "Di decision not to increase VAT means say di measures to help lower income households against di potential negative impact of di rate increase now need to dey withdrawn and oda expenditure decisions go dey revisited." Dem say di VAT reversal go affect oda revenue but dem go find ways to replace di VAT increase and dem go do oda proposals as potential amendments for upcoming budgets. How parties dey react? Di Economic Freedom Fighters (EFF) wey be one of di political parties for South Africa wey dey against di VAT increase say dem welcome di decision to reverse di VAT rate. Howeva, di party say make di Finance Minister resign sake of how di budget don threaten di economic stability for di kontri. "Di EFF call for di immediate resignation of di Minister of Finance and di Director General of di National Treasury." Dis entire budget drama na reflection for di Minister of Finance and im Director General say dem dey out of depth and pose a threat to di economic stability of di kontri and by consequence, na threat to di livelihoods of South Africans," EFF tok for dia statement. Di Congress of di People (COPE) party also say di reversal of 'ill-conceived VAT increase' dey welcomed. Dem add say dis reversal "expose either gross incompetence or a deliberate abuse of power by di Minister of Finance." Also, ActionSA party say di VAT reversal na 'victory' for South Africa dem go make sure say no unnecessary tax hike take place for di kontri. "We say NO VAT increase go dey, and we deliva on our promise. As ActionSA, we go kontinue to dey fight to ensure say South Africans dey protected from unnecessary tax hikes".
