Finance Minister Enoch Gondongwana has found himself in a right muddle of things. The minister will soon implement measures to reverse the nation-wide planned vat increase of 0.5 percentage points. The value-added tax (VAT) increase was set to begin on 1 May 2025. However, it faced fierce resistance, including legal cases from the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF). As a result, the African National Congress (ANC) in the Government of National Unity (GNU) had to take a step back.
On Thursday, 24 April 2025, the National Treasury announced that Godongwana will introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill). They will propose to maintain the Value-Added Tax (VAT) rate at 15 per cent from 1 May 2025, instead of the proposed increase to VAT announced in the Budget in March. “The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees,” it said. By not increasing VAT, estimated government revenue will fall short by around R75 billion over the medium term. As a result, the finance minister has written to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill.
This action is needed to propose expenditure adjustments to cover this shortfall in revenue in the 2025 Budget. Parliament will be requested to adjust expenditures to ensure that the revenue loss does not harm South Africa’s fiscal sustainability.
The ANC would have faced immeasurable pressure from its most influential coalition partner the DA. The threat of the DA leaving the ruling coalition as well as possibly winning their case in court to have the VAT increase overturned could lead to division being sown in the GNU leading to its dissolution. President Cyril Ramaphosa would have seen the end of his presidency as new elections would have hade to be called for. Consultation between the various parties both within the GNU and opposition has certainly taken place. Ramaphosa would have acceded to their demands. Gondongwana may now find himself with a sword hanging over his head (in the metaphorical sense). He may be made a scape goat in the coming days should the DA and EFF win their case.
Meanwhile who ever replaces him will have to figure out how to fork out R75 million to sustain state revenue. This has to be done without upsetting the tax payers. Cabinet ministers and their directors-general as well as the President and Deputy President may have to cut back on their own salaries to assist the public purse.
The DA, which is the second-biggest party in the Government of National Unity (GNU) stoked fears that it could leave the coalition after challenging the tax increase in court and voting against the fiscal framework in parliament. “While the move (to withdraw the VAT hike) suggests the GNU is likely to remain intact, providing a measure of stability, uncertainty persists,” said Zain Vawda, market analyst at MarketPulse by OANDA. Vawda said the currency remains under pressure until the government outlines plans for alternative funding or potential budget cuts, leaving room for potential setbacks in the rand’s recent gains. The rand hit an all-time low this month on the VAT dispute and risk aversion over U.S. President Donald Trump’s tariffs. It has since staged a recovery, but is still down about 2% since the start of the month.
The DA was taking a huge risk with the ANC, with this threat. If they risked the dissolution of GNU, they could see chaos ensue in a general election they would be not be prepared for. But now it seems to have paid off. The ANC has bent over double to withdraw the VAT increase to have the support to pass legislation. Ramaphosa has already guessed that the DA and EFF have made strong cases against the increase in court and are likely to win. The threat of Ramaphosa’s presidency ending early by the DA’s threat to withdraw from the coalition was another jolt for the president to rethink his position. The president has a long way to go before the end of his term. He and his advisors had best rethink their positions to improve the government’s position. Finance Minister Gondongwana may find himself at the end of his tether.
It appears that the government has reconsidered its position on VAT while looking elsewhere to supply its budget.
Article written by:
Yacoob Cassim
Journalist at Radio Al Ansaar
