Finance Minister Enoch Godongwana and Dr Duncan Pietersen, the Director-General for National Treasury noted in the 2025 Budget that Value Added Tax (VAT) will be increased.
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Finance Minister Enoch Godongwana said in the 2025 Budget Speech that government proposes to increase South Africa’s value-added tax (VAT) rate by 0.5 percentage points in 2025/26 and 0.5 percentage points in 2026/27.
This will bring the VAT rate to 16% in 2026/27.
The minister noted that in order to provide relief to lower-income households, government proposes additional VAT zero-rating of essential food items and said that there would be no changes to the fuel levy.
According to Dr Duncan Pietersen, the Director-General for National Treasury, this measure would enable additional funding in several key areas, including extending early childhood development coverage; hiring more teachers, doctors and other critical frontline personnel; and rebuilding the commuter rail system.
“To alleviate the impact on low-income households, the budget provides for above-inflation increases in social grants, expands the list of foods that are zero-rated for VAT, and extends fuel levy relief,” Pietersen said.
“Over the medium term, new spending pressures must be funded either through revenue increases or spending reductions or reprioritisations,” he added.
Minister Godongwana acknowledged that he was not delighted to increase taxes and said that the decision was not taken likely.
The 2025 Budget proposes tax revenue increases for South Africans in order to fund new and persistent spending pressures.
According to the Budget, these measures are expected to raise R28 billion in additional tax revenue in 2025/26 and R14.5 billion in 2026/27, mainly by not adjusting personal income tax brackets for inflation and increasing the VAT rate by 0.5 percentage points in each of the next two years.
Headline inflation declined to 2.9% in the fourth quarter of 2024, resulting in an average inflation of 4.4% for the year, according to Godongwana.
He noted in the Budget that consumer inflation is projected to average 4.3% in 2025 and 4.6% in 2026, picking up slightly as VAT increase pushes up prices.
The VAT effect is seen mainly in core inflation, which, after averaging 4.3% in 2024, is projected to rise to 4.6% in 2026.
Lower global crude oil prices are expected to support muted fuel price inflation.
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