South Africa Shelves VAT Hike amid Political Ruckus

South Africa has withdrawn its proposal to raise VAT by 1 percentage point due to political opposition. Originally aimed at boosting revenue, the proposal faced resistance amid economic stagnation and public displeasure over living costs. The decision underscores coalition tensions and fiscal challenges.

In a noteworthy move, South Africa scrapped its VAT hike proposal following intense political backlash, threatening the stability of its coalition government. Plans to incrementally raise VAT by 1 percentage point aimed at increasing state revenue were met with resistance as the country grapples with economic stagnation and rising public discontent over living expenses.

The African National Congress supported the VAT increase for sustainable revenue generation, while the Democratic Alliance opposed it, emphasizing the added economic burden on citizens. The decision's announcement by the finance ministry was hailed by the DA, highlighting underlying coalition tensions. Helen Zille of the DA expressed concern over trust issues between coalition partners.

As the VAT remains at 15%, the finance ministry projected a significant revenue shortfall without the increase, proposing expenditure adjustments to maintain fiscal sustainability. The shelving of the tax hike marks a retreat from the Treasury's initial proposal to boost spending in vital sectors, reflecting the coalition government's fiscal dilemma.

(With inputs from agencies.)