What does the pause of this VAT increase mean for South Africa?

Faculty and Staff

05 May 2025

By not increasing VAT by 0.5%, it creates a loss in tax revenue estimated at 75 billion (National Treasury, 2025). To address this our finance minister Mr. Godongwana has proposed that the spending bill of the government be looked at (Appropriations bill), which to all of us means they are looking for ways to cut governmental costs. He also proposes the funding that is allocated to all the provinces be further reduced (Division of revenue bill).

Potential Impact on Service Delivery

Simply put it means that National and provincial governments will get significant reductions in funding. Will this impact service delivery at a provincial level? These rather significant concerns would need to be addressed.

The next concern would be, will these proposed reductions in funding be counterproductive to infrastructure development plans? We do after all need serviceable roads as 82.8% of goods are transported by road (Statistics South Africa, 2024).

Relief for Lower-Income Households

A further consideration is the relief to lower income households as over 20 million South Africans are receiving social grants. The scrapping of the VAT increase will create less strain on monthly and weekly costs. Even the poor have cellphones and pay for them to get ad hoc work.

Overall, it comes as a relief to most South Africans, but we still need to be aware that our countries “Credit Card” is almost maxed out. Our debt is projected to rise to 87.8% or more (Fitch Ratings, 2025).

Final Thoughts

In conclusion, most of us have taken a breath as we do not need to get ready for the price increase that would come with an increase in VAT. If the fiscus can cut the required spending without sacrificing essential services and infrastructure, we are on a path to growth and prosperity.

Share this article:

Hewitt Gregory Lecturer: Accounting and Finance - School of Commerce