South African Finance Minister Enoch Godongwana announced a reversal of the highly contentious 0.5% VAT increase proposed during the recent budget presentation. This decision, which requires all businesses that have already loaded the increased VAT on customer invoices to reverse it by May 1, results from extensive consultations with political parties as asserted by the National Treasury.
The decision not to proceed with the VAT hike is projected to lead to an estimated revenue shortfall of approximately R75 billion over the medium term. Godongwana, however, sought to reassure the public by stating that Parliament would be asked to adjust expenditure in a way that safeguards South Africa’s fiscal sustainability despite this setback.
The backdrop to this critical fiscal decision is a fracture within the governing coalition of the Government of National Unity (GNU), particularly between the ANC and its alliance partners. The Democratic Alliance (DA) refused to vote with its partners on the Fiscal Framework brought forward in Parliament, objecting to what they perceived as a lack of concessions from the ANC on various demands, including the privatisation of specific ports. As tensions escalated, the DA announced their intent to take legal action against the government, arguing that Godongwana lacked the authority to raise VAT as proposed.
This political drama intensified as the Western Cape High Court prepared to announce its verdict next week on a case initiated by the DA and the Economic Freedom Fighters (EFF), questioning both Godongwana’s authority and the process by which the Fiscal Framework was adopted.
In a clear indication of deteriorating relations, the ANC and its supporting parties—including the Patriotic Alliance, the Inkatha Freedom Party (IFP), the United Democratic Movement (UDM), and the Good Party—held a media briefing to declare that the decision to cancel the VAT hike was the outcome of extensive consultations, rather than a consequence of DA pressure. “It must be stated without ambiguity: the Democratic Alliance did not win in Cabinet, in Parliament, or in the courts. What they seek to brand as a ‘victory’ is in fact the result of consultations and consensus-building,” pointed out ANC spokesperson, Mahlengi Bhengu-Motsiri.
Bhengu-Motsiri, in a scathing rebuke of the DA, accused the party of trying to perpetuate a narrative of exclusion. “The DA’s typical opportunistic attempt to claim victory is a continuation of their typical insult to South Africans whom they consider voting cattle with no sense of thinking or reasoning,” she said.
On the other hand, the DA celebrated the announcement as a significant victory not just for the party, but for millions of South Africans who would be spared from the proposed tax burden. In a statement, DA’s Federal Council Chairperson Helen Zille described the withdrawal of the VAT hike as a victory stemming from grassroots activism and public engagement.
As tensions within the GNU continue to unfold and the implications of the VAT reversal become clearer, South Africa watches closely, hoping for a resolution that prioritises fiscal responsibility while addressing the needs of its citizens.