By Olivia Kumwenda-Mtambo
JOHANNESBURG (Reuters) -South Africa will not increase its value-added tax (VAT) from May 1, the finance ministry said on Thursday, after the proposed hike faced opposition from political parties and caused friction within the coalition government.
The National Treasury had planned to raise VAT by 1 percentage point spread over two years, as part of revenue measures for the 2025 national budget.
But the two biggest parties in the coalition government, the African National Congress and the Democratic Alliance, have been at odds over the proposal to raise VAT by 0.5 percentage points on May 1 and another 0.5 points next year.
VAT will be maintained at 15%, the ministry said in a statement, adding that Finance Minister Enoch Godongwana will introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks.
“The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees,” the ministry said.
Without the VAT increase, estimated revenue is expected to fall short by around 75 billion rand ($4.02 billion) over the medium term.
“Parliament will be requested to adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability,” it added.
The planned VAT hike had been challenged in court.
Godongwana had argued in court papers that failure to raise the VAT would cause severe harm to state finances.
Some smaller political parties had put forward proposals that would include deeper expenditure cuts instead of a VAT hike.
The finance ministry said while some suggestions were worthwhile, they “would not provide an immediate avenue for further revenue in the short term to replace a VAT increase.”
($1 = 18.6741 rand)
(Reporting by Olivia Kumwenda-Mtambo; Editing by Kim Coghill)
