South Africa Shelves VAT Hike Amid Political Opposition

South Africa will not raise its value-added tax due to political opposition and coalition disputes. Initially, the proposal aimed to increase VAT by 1% over two years to fund the 2025 budget. The decision follows extensive consultations, with anticipated revenue falling short by 75 billion rand.

In South Africa, plans to increase the value-added tax (VAT) from May 1 have been scrapped, the finance ministry announced on Thursday. The proposal had been met with resistance from political parties, causing friction within the ruling coalition.

The initial plan by the National Treasury was to boost VAT by 1 percentage point over two years to bolster revenue for the upcoming 2025 national budget. However, the African National Congress and Democratic Alliance, the two largest parties in the coalition, clashed over a phased VAT increase of 0.5 points each in 2021 and 2022, leading to a decision to keep VAT steady at 15%.

The finance ministry cited extensive political consultations and recommendations from parliamentary committees as factors in the decision. Without the VAT hike, the government expects a revenue shortfall of 75 billion rand ($4.02 billion) over the medium term. Alternatives, such as deeper spending cuts, were considered but deemed insufficient for immediate revenue generation.

(With inputs from agencies.)