South Africa Faces $4B Revenue Gap After Reversing Planned VAT Hike
TLDR
- South Africa’s government has dropped plans to raise the value-added tax (VAT) following internal coalition tensions
- The proposed 1-percentage-point increase over two years was intended to help close a 75 billion rand ($4.02 billion) revenue shortfall
- Finance Minister Enoch Godongwana will now present revised spending plans via updated Appropriation and Division of Revenue Bills
South Africa’s government has dropped plans to raise the value-added tax (VAT) following internal coalition tensions, the finance ministry said on Thursday. The proposed 1-percentage-point increase over two years was intended to help close a 75 billion rand ($4.02 billion) revenue shortfall.
The African National Congress (ANC), which supported the VAT hike, clashed with coalition partner Democratic Alliance (DA), which argued it would increase pressure on low-income households. The finance ministry confirmed VAT will remain at 15%.
Finance Minister Enoch Godongwana will now present revised spending plans via updated Appropriation and Division of Revenue Bills. Parliament is expected to adjust expenditure to offset the shortfall without compromising fiscal sustainability. Political uncertainty and mixed signals on tax policy risk undermining investor confidence, analysts said. The DA had opposed the budget’s fiscal framework and challenged the tax proposal in court.
Daba is Africa's leading investment platform for private and public markets. Download here
Key Takeaways
South Africa’s decision to reverse a planned VAT hike underscores growing instability within its coalition government and highlights the political sensitivity of fiscal policy in an election year. While the ANC viewed the VAT hike as a necessary step amid weak growth and limited revenue alternatives, the DA positioned itself as a defender of household affordability. The disagreement reflects deeper tensions over spending priorities, governance, and economic reform. The move also complicates efforts to reduce the budget deficit without cutting essential social and infrastructure programs. The National Treasury now faces the challenge of reallocating spending while preserving fiscal credibility. Analysts warn that inconsistent policy signals could affect South Africa’s borrowing costs and investor outlook. With public debt projected to remain above 70% of GDP and interest costs consuming over 20% of revenue, balancing fiscal responsibility with political consensus will remain a central challenge for the coalition government.
Think someone else should see this?
To invest in this opportunity and other opportunities across Africa
Download the daba finance app on your mobile through
Take action.
Download app
Start investing in Africa’s best opportunities, including stocks, bonds, startups, venture funds, and more.
Partner with us
Unlock exciting business opportunities and growth potential.
Join Daba
Become a part of our vibrant community and enjoy exclusive benefits.
Contact us
Reach out to us for inquiries, support, or collaboration.