VAT Attack: Why South Africa’s 1‑Point Tax Hike Has Citizens, Courts & Wallets on Edge

South Africa’s Treasury plans to lift the standard VAT rate from 15 % to 16 % in two steps (½ percentage‑point on 1 May 2025, another ½ percentage‑point on 1 April 2026).

Government says it needs the extra ± R28 billion over two years to plug a widening budget gap and fund social‑grant expansions, while keeping the lights on at Eskom and paying rising debt‑service costs.Opposition parties (DA, EFF) and some civil‑society groups have gone to court, arguing the hike is rushed, regressive and unconstitutional. Unions such as COSATU warn that blocking the increase could blow an even bigger hole in state finances.

1. What exactly is being proposed?

Current VAT	Proposed increase	Effective dates	New rate
15 %	+0.5 pp	1 May 2025	15.5 %
	+0.5 pp	1 Apr 2026	16 %

The Treasury argues South Africa’s rate is still below the OECD average (19 %) and many peer economies. 

2. Why does government want it?

Fiscal pressure	Details
Budget shortfall	± R60 bn after a dip in corporate‑tax receipts and the expiry of some U.S. HIV‑AIDS funding.
Debt‑service costs	Interest now absorbs ± R385 bn a year (almost as much as health).
Social‑spending promises	Extending the SRD grant, above‑inflation increases in child‑support and old‑age grants, and a pilot basic‑income grant.
SOE & infrastructure bail‑outs	Eskom debt relief, passenger‑rail recovery, water‑board repairs.
“Least bad” tax lever	Treasury says VAT raises lots of money quickly with comparatively small drag on growth vs. higher personal or corporate taxes.

The finance minister told Parliament that abandoning the hike would “severely damage” the fiscal framework. citeturn1news9

3. What will the money be used for?

Allocation (2025/26)	Approx. additional funding source
Social Protection (grants, school‑feeding, new zero‑rating on offal & canned veg)	R10 bn
Energy & Infrastructure (Eskom support, water boards, SANRAL backlog)	R7 bn
Health & Education stabilisation	R5 bn
Debt‑service buffer	R6 bn

(Breakdown derived from Chapter 4 of the 2025 Budget Review.) 

4. Who is fighting it, and on what grounds?

• Democratic Alliance & EFF court bid – seek an urgent interdict to halt implementation, arguing lack of proper public participation and that Section 7(4) of the VAT Act is unconstitutional.

• Coalition turmoil – the DA has already threatened to quit the national coalition over the hike.

• Unions – COSATU opposes litigation but wants more zero‑rated foods and a claw‑back on luxury goods.

• Business & NGOs – some retailers warn of pass‑through costs; civil‑society budget groups propose wealth‑tax alternatives.

5. How much would it actually cost an ordinary household?

Every extra 0.5 percentage‑point adds R5 to the price of every R1 000 of taxable spending.

Monthly VAT‑able spend	Extra cost in 2025 (15 % ➜ 15.5 %)	Extra cost in 2026 (15.5 % ➜ 16 %)	Two‑year total
R3 000 (tight budget)	R15 / month	+R15	R360 / year
R7 000 (average urban)	R35 / month	+R35	R840 / year
R15 000 (upper‑middle)	R75 / month	+R75	R1 800 / year

Things not affected:

• 21 existing zero‑rated staples (maize meal, brown bread, fresh fruit/veg, etc.)

• Newly zero‑rated items from 1 May 2025: poultry & beef offal, tinned veg, dairy blends.

• Municipal rates, bus/minibus taxi fares, school fees at public schools (all VAT‑exempt).

Things affected:

• Fuel, airtime/data, restaurant meals, most retail goods and services.

• Electricity: Eskom charges VAT; municipalities pass it on to prepaid customers.

6. Should you care — or just accept?

Point to care about	Counter‑point
Cost‑of‑living squeeze – food inflation may slow but transport & electricity hikes compound the hit. Low‑income households have less buffer.	Half‑point steps stagger the blow; poor households buy more zero‑rated items. Treasury data show top four expenditure deciles pay 75 % of VAT.
Precedent & transparency – if the hike is rushed without robust public consultation, it weakens accountability over future tax changes.	Section 77 of the Constitution lets a simple‑majority Budget change VAT. Courts must still test whether procedure was followed.
Alternatives exist – wealth‑tax, carbon levy, luxury‑goods excise, stronger enforcement.	Those options take longer to implement and may yield less revenue in the short term.
Economic signal – higher consumption tax could dampen discretionary spending, hitting retail jobs.	Treasury argues VAT is growth‑friendlier than raising PIT/CIT; keeping borrowing in check averts rating downgrades that hurt everyone.

7. What happens next?

1. Court timelines – Western Cape High Court will hear the urgent interdict in late April; a merits hearing could drag into the second half of 2025.

2. Parliamentary amendments – Money Bills Committee can still tweak or scrap the hike before the Revenue Laws Amendment Bill is finalised in June.

3. Retailer pricing – Large chains usually change shelf prices overnight; many SMEs absorb part of the first 0.5 pp to stay competitive.

4. Possible compromises – Opposition has hinted it might accept 0.25 pp now plus a wider zero‑rating basket; Treasury signals “everything is on the table” if revenue can be found elsewhere.

Bottom line

Even a 1 percentage‑point VAT rise is not apocalypse, but it is material for cash‑strapped households and sets the tone for who shoulders SA’s fiscal pain.Staying informed, participating in public‑comment windows, and watching how the courts rule are practical ways not to “just accept” a decision that touches every till slip in your wallet.