South Africa Backs Down on VAT Hike Amid Public Outcry

Reuter

In a significant policy reversal, South Africa has abandoned its plan to raise the value-added tax (VAT) from 15% to 16%. The move followed growing political resistance and public dissatisfaction over a measure that many feared would deepen the financial burden on struggling households.

Initially, the government hoped the VAT increase—set to begin on May 1, 2025—would help fill a R75 billion ($4 billion) revenue gap. But backlash from citizens, economists, civil society groups, and opposition parties made it clear that the proposal risked widening inequality in a country already grappling with high unemployment and inflation.

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The Democratic Alliance (DA), a major coalition partner in the current unity government, firmly rejected the increase. Their argument centered on fairness: raising a consumption tax would hit the poorest South Africans hardest, while doing little to fix structural issues in the national budget. Finance Minister Enoch Godongwana responded to the pressure by officially withdrawing the proposal and promising a review of spending instead.

This climbdown marks the first high-profile compromise of South Africa’s new coalition government, underscoring the tensions between fiscal discipline and social justice. While the ANC-led administration maintains it remains committed to closing the deficit, the VAT reversal highlights the need for more equitable ways to stabilize the economy.

For now, South Africans can breathe a little easier—at least at the checkout counter.