NOW YOU SEE IT, NOW YOU DON'T

BUDGET 2025 Withdrawing the VAT increase is good news for business, but ... KEITUMETSE SESANA and JERRY BOTHA Picture credit: National Treasury kb& NOW YOU SEE IT, NOW YOU DON'T IN MIDAPRIL, it was still all systems go for the VAT rate to increase to 15.5% on 1 May 2025. A week later, South African businesses and consumers woke up to the news that Finance Minister Enoch Godongwana had withdrawn the proposed increase of 0.5 percentage points. This followed after another day in the Western Cape High Court where the DA is fighting the increasearguing, among others, that the VAT rate can only be increased after Parliament decides, and not through a pronouncement by the Minister. Implications for business The withdrawal is good news for busi ness in the sense that the VAT rate will be unchanged at 15%. This is to be welcomed in a constrained economic environment, particularly since many businesses were contemplating absorbing the increase to cushion consumers. Political parties such as the Democratic Alliance DA , the Economic Freedom Fighters EFF , the Freedom Front Plus, and civil society groups have lamented the proposed VAT hike and the impact it will have on vulnerable consumers. The initial proposal of a 2 percentage points increase led to the postponement of the Budget in February 2025. On 12 March 2025, in Budget 2.0 Godongwana announced a 0.5 percentage points in each of the following two Budget 3.0? In a media statement issued by National Treasury on 30 April 2025, Finance Minister Enoch Godongwana announced that the 2025 Budget Review would be 'retabled' on 21. May 2025, following the scrapping of the 0.5% VAT increase announced in the second iteration of the Budget that came out on 12 March 2025. Will Budget 3.0 to misquote Microsoft when announcing the release of Windows 10 "the last version ... ever?" I'm not normally a gambling man, but a R10 flutter on the possibility that May's version of the 2025 Budget might not be the last could well be a good bet. Watch this space ... STEVEN JONES, Editor years. The DA also opposed this. However, uncertainty remains should an outofcourt settlement about the VAT increase between the DA and the ANC not be reached. This announcement by Godongwana is a significant development in the tax world. Businesses were left in the dark since the Budget was postponed in February, but had more recently started preparing for the VAT increase by adjusting their systems to be ready by 1 May. The withdrawal of the proposed increase means that some businesses may have already spent money in preparation for the hikewhich is now down the drainbut at least it is good news for business that the increase has now been withdrawn. Will Treasury look to SARS to fill the hole in revenue? In a statement on 24 April 2025, the Ministry of Finance said that it will shortly introduce the Rates and Monetary Amounts and the Amendment of Reve nue Laws Bill Rates Bill , which proposes to maintain the VAT rate at 15%. According to the statement, " t he decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees. By not increasing VAT, estimated revenue will fall short by around R75 billion over the medium term." The statement goes on to note that to offset the "unavoidable expenditure adjustments", any additional revenue collected SARS may be considered for this purpose going forward. This indicates that it will be down to SARS to collect more revenue to make up the gap, and greater scrutiny by SARS can be expected in the current financial year. Godongwana indicated that there are many suggestions; however, some of them would create greater negative consequences for growth and employmentand that some of them, "while worthwhile, would not provide an imme diate avenue for further revenue in the short term to replace a VAT increase". He has also written to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill, in order to propose expenditure adjustments to cover this shortfall in revenue. According to the Finance Ministry, 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", with Godongwana noting that one of the only other ways to collect such revenue will be to increase borrowing, increasing the debt burden and service costs. Keitumetse Sesana, strategic lead for stakeholder engagement and legislation, South African Institute of Taxation. Jerry Botha, managing partner, Tax Consulting SA.