JOHANNESBURG- South Africa’s Finance Minister, Enoch Godongwana, has sparked widespread opposition with his announcement that the Value-Added Tax (VAT) will rise to 16% by the 2026/27 financial year. The hike, which will occur in two stages—an increase of 0.5 percentage points in 2025 and another in 2026—has drawn sharp criticism from opposition parties and some members of the Government of National Unity (GNU), who have vowed to vote against the budget.

Godongwana, presenting the delayed 2025 budget on 12 March, explained that the VAT increase, expected to generate R13.5 billion in 2025, was a decision made after much debate, meant to address urgent service delivery needs while balancing the country’s economic challenges. The hike comes after a previous proposal for a two-percentage-point increase, which was rejected by the GNU and delayed the budget presentation.

The minister stated that the increase was necessary to prevent spending cuts and to extend the social wage, particularly the Social Relief of Distress (SRD) grant, which continues to support millions of vulnerable South Africans. However, the decision has not been welcomed by many in Parliament, particularly opposition leaders.

Wouter Wessels from the FF Plus, a partner in the GNU, argued that there was no consensus on the VAT increase, calling it an unnecessary tax burden that would harm South Africans. He vowed to stop the hike within the GNU’s power. Similarly, Steve Swart from the African Christian Democratic Party (ACDP) called for alternative means to boost the economy, suggesting the government pursue funds from overseas bank accounts linked to corruption and collect owed taxes from the South African Revenue Service (SARS) to balance the budget.

The VAT hike is part of a broader tax plan that also includes no inflationary adjustments to personal income tax brackets, rebates, and medical tax credits. While the increase is expected to raise R28 billion in 2025/26 and R14.5 billion in 2026/27, it is significantly less than the R58 billion initially projected in the shelved February budget.

The budget’s tax proposals have stirred controversy, with many arguing that the VAT increase disproportionately affects poorer households. In response, Godongwana announced an extension of zero-rated food items, such as canned vegetables, dairy liquid blends, and organ meats, to help mitigate the impact of the hike on low-income groups.

While Godongwana emphasized that VAT is the most effective and equitable tax to address the country’s fiscal shortfall, the proposed increase has further deepened political divisions. Opposition leaders, including Democratic Alliance (DA) leader John Steenhuisen, have already signaled their opposition to the budget in its current form.

The African National Congress (ANC), which currently lacks a parliamentary majority, will need support from other parties to pass the budget. The IFP and other GNU members have also expressed support for new tax increases. However, with opposition mounting, it remains uncertain whether the proposed VAT increase will gain the necessary support in Parliament.

The debate over the 2025 budget highlights the ongoing tension between government efforts to secure revenue and the economic realities facing many South Africans, with critics arguing that the tax increases will exacerbate poverty and inequality in the country.