The Ministry of Finance has announced that finance minister Enoch Godongwana will soon introduce a bill in Parliament that proposes to maintain the Value-Added Tax (VAT) rate at 15% from 1 May.
This is a stunning reversal from Godongwana, who previously indicated that he did not see a way to avoid increasing VAT without alternatives for raising revenue on the table.
Earlier this year, the finance minister caused an uproar in the Government of National Unity (GNU) when he proposed increasing VAT by two percentage points.
It resulted in his February budget speech being postponed while President Cyril Ramaphosa’s Cabinet discussed alternatives with National Treasury.
When Godongwana delivered his address a month later, he said Treasury intends to increase VAT from 15% to 15.5% this year, followed by another increase to 16% next year.
He said next year’s increase could be stopped if something changed in the interim that allowed Treasury to raise more revenue.
While Godongwana has now said his new Rates and Monetary Amounts and the Amendment of Revenue Laws Bill would propose halting the increase, it came with a warning.
“By not increasing VAT, estimated revenue will fall short by around R75 billion over the medium-term,” the Ministry of Finance said in a statement on Thursday.
“The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees.”
Godongwana said he wrote to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill to propose expenditure adjustments to cover the revenue shortfall.
Image: Sowetan Live!
