South Africa”s Finance Minister, Enoch Godongwana, has announced a phased increase in the value-added tax (VAT) during his 2025 Budget Speech on March 12, 2025. The VAT rate, currently at 15%, will rise by 0.5 percentage points in the 2025/26 financial year, effective May 1, 2025, and an additional 0.5 percentage points in 2026/27, bringing it to 16% by April 1, 2026.
This decision follows extensive deliberations within the coalition government. Initially, a 2-percentage-point increase was proposed to address a R60 billion ($3.2 trillion) fiscal deficit, partly due to the cessation of U.S. funding for HIV/AIDS programs under President Donald Trump. However, this proposal faced significant opposition from coalition partners, particularly the Democratic Alliance (DA) and senior African National Congress (ANC) members, leading to a compromise for a gradual increment.
Minister Godongwana emphasised that the VAT hike is essential to meet pressing spending needs in critical sectors such as health, education, transport, and security. He acknowledged the potential impact on household spending and economic growth but underscored the necessity of this measure to fulfil the government’s constitutional obligations to its citizens.