Finance Minister Enoch Godongwana has confirmed that South Africa will see a VAT increase over the next two years. Starting in the 2025/26 financial year, the VAT rate will rise by half a percentage point, with another increase in the following year, ultimately bringing the tax to 16% by 2026/27.
This decision comes as the government seeks ways to address service delivery needs and funding gaps without further burdening the economy with debt.
Godongwana tabled the 2025/26 budget in Parliament on Wednesday, after a delay last month. The VAT increase has sparked considerable debate, particularly within the Government of National Unity (GNU), as opposition parties argue against higher taxes.
Opposition’s Response: DA Rejects Budget in Its Current Form
Before Godongwana’s address, Democratic Alliance (DA) Leader John Steenhuisen made it clear that his party would not support the budget in its current form.
Steenhuisen criticized the ANC for insisting on permanent VAT hikes without agreeing to necessary economic reforms that could stimulate growth, create jobs, and reduce waste.
“The DA made it clear to the ANC that we would only support temporary tax increases, paired with significant reforms aimed at revitalizing the economy,” Steenhuisen said.
“The ANC has failed to agree to these proposals and continues with its approach to raise VAT permanently, which will ultimately make the people of South Africa poorer.”
The DA’s stance reflects a growing divide within the government, with some parties prioritizing tax cuts and reforms over tax hikes.
Godongwana Defends VAT Increase as a Necessary Step
Minister Godongwana defended the VAT hike, explaining that the government had explored alternative tax options but found them unsuitable. Raising corporate or personal income taxes, he argued, would not generate enough revenue and could hinder economic growth, job creation, and investment.
“We explored the possibility of increasing corporate and personal income taxes, but these measures would have a more negative impact on the economy,” Godongwana said. “Corporate tax collections have been declining in recent years, and increasing personal income taxes would discourage savings and work.”
[ Treasury Forecasts 1.9% Economic Growth For 2025 ]
The minister also emphasized that taking on more debt was not an option due to South Africa’s already high borrowing costs and credit rating risks. He noted that the VAT increase was carefully considered for its minimal impact on households while helping to fund vital government services.
“This decision was not made lightly,” Godongwana added. “However, it is necessary to avoid further cuts to essential services and ensure we can continue to fund our social programs.”
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