Finance Minister Enoch Godongwana confirmed that Value Added Tax (VAT) will increase by 1 percentage point over the next two financial years. The first half of a percentage point will be implemented this year.
This will bring the VAT rate to 16 percent in 2026/27.
To raise the revenue needed, the government proposes to increase the VAT rate by half a percentage point in 2025/26, and by another half a percentage point in the following year.
The budget, originally scheduled for 19 February, was delayed due to GNU disagreements over VAT. The minister then confirmed the VAT increase on 12 March when he tabled the revised budget.
The Minister acknowledged that the increase in VAT will affect all South Africans. In an effort to mitigate the impact, the government has proposed no inflationary adjustments to personal income tax brackets, rebates, and medical tax credits.
VAT is a tax that affects everyone. By opting for a marginal increase in VAT, its distributional effect and impact were cautiously considered.
Minister Godongwana said the decision to raise VAT was made after a careful assessment of all available options.
Alternatives like increased corporate or personal income taxes were rejected due to their potential to harm economic growth, reduce investment, and diminish taxpayer incentives.
Given the limitations of increased borrowing and the need to maintain essential social spending, a marginal VAT increase was deemed the most effective and equitable solution, all while minimizing the need for drastic spending cuts.
It was confirmed that the basket of VAT zero-rated food items will be expanded to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry, and other animals. This is being done to cushion households from the impact of the VAT increase.
