14 March 2025 | 11:41 CAT
3-minute read

VAT hike: economic and political fallout

Finance Minister Enoch Godongwana’s delayed budget speech has ignited fierce debate across South Africa. At the heart of the controversy is the proposed increase in Value-Added Tax (VAT) from 15% to 16%, to be phased in over 24 months. While government insists this is a necessary measure to stabilise the economy and fund social grants, critics argue that it will disproportionately impact the poor.

On Radio Islam International’s ASRI Report, political analyst Angelo Fick highlighted the fundamental problem with the VAT hike: it is a regressive tax. Unlike progressive taxes, such as income tax, where higher earners contribute a larger percentage of their earnings, VAT applies equally to all consumers, hitting lower-income households hardest.

“People already precariously situated in an economy where inflation is a problem and where price costs will go up will spend more money or a greater percentage of their income getting their basic services and goods,” Fick explained.

This increase comes at a time when millions of South Africans are already struggling with rising food and transport costs. Despite government’s assurances that additional basic food items will be VAT-exempt, many essential goods and services remain taxable. The social grant increases, set at 6%, may not be enough to offset the broader cost-of-living crisis.

Political unrest in the GNU

The VAT hike is also exposing fractures within the Government of National Unity (GNU). While the African National Congress (ANC) insists that the budget reflects broad consensus, the Democratic Alliance (DA), the second-largest party in the coalition, has openly opposed the increase.

“If the second largest partner in the GNU says that they’re not in agreement with this budget, then that speaks to the cracks inside the coalition that governs South Africa at the moment,” Fick pointed out.

With an eye on the 2026 municipal elections, opposition parties across the political spectrum are seizing on the VAT controversy to rally support. From the Economic Freedom Fighters (EFF) on the left to the Inkatha Freedom Party (IFP) on the right, there is rare agreement that the tax increase will deepen economic hardship. Civil society groups, including Equal Education and the Socio-Economic Rights Institute (SERI), have also warned that the burden will fall heaviest on women and children, exacerbating existing inequalities.

Public outcry and possible resistance

Fick believes the VAT proposal is far from final. The bill must still be debated in Parliament, where coalition politics could influence the outcome. He urged ordinary South Africans to make their voices heard.

“If you don’t like this budget, if you see that it’s going to affect you negatively, make those representations to the constituency offices of members of parliament in your area. Write directly to Parliament and to MPs,” he advised.

With ANC no longer holding a parliamentary majority, the fate of the VAT hike could hinge on whether coalition partners break ranks. Pressure from civil society, trade unions, and opposition parties may still force government to reconsider. But for now, South Africans brace for the possibility of higher costs and tougher times ahead.

Listen to the ASRI Report on Sabaahul Muslim with Moulana Junaid Kharsany.