MIDNIGHT U-TURN: National Treasury Scraps VAT Hike in Shock Move

Finance Minister Enoch Godongwana.

In a stunning reversal, the National Treasury announced the scrapping of the controversial VAT increase in a media statement issued at 12:15 AM, just hours before the planned implementation date. The decision comes after intense negotiations between political parties, with the ANC, IFP, Action SA, and others working together to find a solution.

The DA, which had challenged the VAT hike in court, confirmed that lawyers for the Minister of Finance had approached them proposing an out-of-court settlement. "The DA is awaiting a formal written settlement," said Helen Zille, DA federal council chairperson.

According to a senior finance ministry source, "Without a VAT increase, spending cuts are the only game in town realistically..." The National Treasury's statement indicated that Finance Minister Enoch Godongwana would soon introduce a revised Rates and Monetary Amounts and Amendment Bill.

The sudden about-face has raised questions about the government's fiscal strategy and potential spending cuts. As the nation digests this unexpected move, one thing is clear: the VAT hike debate has taken a dramatic turn.

"The parties have come together to facilitate a principled resolution to the fiscal framework impasse and to uphold the stability and developmental trajectory of South Africa," said Mahlengi Bhengu-Motsiri, national spokesperson for the ANC.

The National Treasury's decision has significant implications for the country's economy and fiscal policy. As the details unfold, South Africans will be watching closely to see how the government plans to address the revenue shortfall and what spending cuts may be on the horizon.

The Economic Freedom Fighters (EFF) had begun court challenges to stop the proposed 0.5 percentage point Value-Added Tax (VAT) increase, alongside the Democratic Alliance (DA). The EFF argued that the VAT increase would further escalate the cost of living, disproportionately affecting the poor and vulnerable. With the National Treasury's decision to scrap the VAT hike, the EFF's efforts, combined with those of the DA and other critics, have seemingly paid off. The VAT rate will remain at 15% from May 1, 2025, instead of increasing to 15.5% as previously announced.

The DA has claimed victory after the National Treasury announced it would drop the planned 0.5 percentage point VAT increase. Zille said that Godongwana should be "embarrassed" for buckling under pressure after fighting for the increase even in court. "The Minister's decision to scrap the VAT hike is a victory for the DA and a testament to our efforts to protect the poor and vulnerable," Zille said.

The DA's victory claim has sparked debate, with some arguing that the party's court action was instrumental in forcing the government's hand. Others have questioned whether the decision to scrap the VAT hike was a genuine policy shift or a tactical retreat.

The National Treasury's decision to scrap the VAT hike has significant implications for the country's fiscal policy and economy. As the details unfold, South Africans will be watching closely to see how the government plans to address the revenue shortfall and what spending cuts may be on the horizon.

“The DA's efforts have paid off, and we're proud to have stood up for the people of South Africa. The Minister should be embarrassed for trying to impose this tax hike in the first place and then buckling under pressure. We'll continue to hold the government accountable for its actions,” Zille said.

The Economic Freedom Fighters (EFF) has demanded the immediate resignation of Finance Minister Godongwana and National Treasury Director-General Duncan Pieterse following the announcement to scrap the 0.5 percentage point Value-Added Tax (VAT) increase. The party described the VAT hike plan as "misguided, ill-conceived, and reckless."

In a statement, EFF spokesperson Sinawo Thambo said: “The EFF calls for the immediate resignation of the Minister of Finance and the Director-General of the National Treasury. This entire budget fiasco should be a reflection for the Minister of Finance and his Director-General that they are out of depth and pose a threat to the economic stability of the country and, by consequence, are a threat to the livelihoods of South Africans.”

The VAT hike issue has caused significant fractures in the Government of National Unity (GNU), with various parties taking different stances on the matter. The EFF's call for Godongwana's resignation adds to the growing pressure on the Minister and the National Treasury. “The Minister and Director-General's actions demonstrate a clear lack of understanding of the economic realities facing South Africans. Their reckless decisions pose a threat to the livelihoods of our people, and it's time for them to take responsibility and step down,” Thambo said.