1. INTRODUCTION
This non-binding informational memorandum provides a legal overview of the recent reversal of the intended Value-Added Tax (“VAT”) increase for the Republic of South Africa in 2025. It also outlines the statutory and constitutional requirements for altering the VAT rate, referencing pertinent legislation, court proceedings, and established parliamentary processes.
2. REVERSAL OF THE 2025 VAT INCREASE
On 24 April 2025, pursuant to Section 7(1) of the Value-Added Tax Act 89 of 1991, the South African government withdrew a planned increase in VAT from 15% to 15.5%. The proposed higher rate had been announced in the March 2025 budget speech for implementation on 1 May 2025.
Following the announcement of this VAT adjustment, certain political parties (including the Democratic Alliance and the Economic Freedom Fighters) instituted proceedings in the Gauteng Division of the High Court, Pretoria, challenging the validity of the proposed increase. Their application relied on Section 77 of the Constitution of the Republic of South Africa, 1996, particularly subsections (1)(b) and (3), which classify a Bill that imposes national taxes as a money Bill and mandate specific procedural and public participation requirements. Specifically, the applicants alleged insufficient compliance with these obligations and other constitutional prerequisites for tax legislation.
In view of the legal challenge and the associated procedural concerns, the Minister of Finance, on behalf of the government, determined that reverting to the existing 15% VAT rate and withdrawing the proposed increase would be prudent. This decision was confirmed on 24 April 2025.
3. IMPLICATIONS FOR GOVERNMENT REVENUE
By rescinding the VAT rate adjustment pursuant to the Minister of Finance's powers under the Value-Added Tax Act 89 of 1991, the National Treasury estimates a shortfall of approximately ZAR 75 billion in tax revenue over the next three fiscal years (2025/26 to 2027/28) relative to prior projections.
In response, the Minister of Finance has indicated that adjustments to government expenditure will be required. Accordingly, Parliament is expected to deliberate on potential expenditure reductions or reprioritizations to maintain fiscal sustainability.
Certain relief measures initially contemplated to mitigate the impact of the VAT increase - for example, expansions to zero-rated items - have been placed on hold, as the basis for such measures was linked to the higher VAT rate.
4. LEGAL REQUIREMENTS FOR INCREASING VAT
4.1. Authority to Propose a Change
In the Republic of South Africa, legislative authority for adjusting the VAT rate derives from Section7 of the Value-Added Tax Act 89 of 1991 (as amended) and Section 77 of the Constitution of the Republic of South Africa, 1996, which governs money bills. Specifically, Section7(4) of the VAT Act outlines the Minister’s power to vary or revoke a VAT rate change, while Section 77 of the Constitution stipulates that any Bill imposing a national tax must be introduced by the Cabinet member responsible for national financial matters. This framework ensures that all VAT rate adjustments proceed lawfully under both statutory and constitutional mandates.
By law, only the Minister of Finance (a member of the Cabinet) may initiate a VAT rate amendment. This principle is grounded in Section77(1)(b) of the Constitution of the Republic of South Africa, 1996, which classifies a Bill that imposes or amends a national tax (such as VAT) as a money Bill and stipulates that such a Bill may be introduced only by the Cabinet member responsible for national financial matters. In addition, Section 7(4) of the Value-Added Tax Act89 of 1991 (as amended) expressly addresses the Minister’s authority to determine or vary the VAT rate, subject to the requisite parliamentary procedures. Collectively, these provisions ensure that any proposed change to the VAT rate follows the constitutionally prescribed process and originates from the executive branch charged with fiscal policy.
4.2. Announcement and Legislative Introduction
VAT adjustments are typically announced during the annual Budget Speech. The Minister of Finance, upon proposing the rate change, tables a formal bill—commonly referred to as the Rates and Monetary Amounts and Amendment of Revenue Laws Bill (“Rates Bill”)—in the National Assembly.
The introduction of the Rates Bill notifies both Parliament and the public of the proposed effective date and rate adjustment, satisfying transparency and notice requirements.
4.3. Committee Review and Public Consultation
Following introduction in the National Assembly, the bill is referred to the Standing Committee on Finance (SCOF) for review. The committee examines the legal, fiscal, and economic implications of the proposal and solicits written or oral submissions from the public, business entities, and civil society.
This phase is guided by constitutional obligations to ensure adequate public participation. Stakeholders may present commentary on the potential effects of a VAT rate modification.
4.4. Parliamentary Debate and Approval
After the committee’s deliberations, the National Assembly debates the proposal in a plenary session and proceeds to a vote. In accordance with Section53(1)(a) of the Constitution, a majority of the members of the National Assembly must be present before a vote on a Bill may be taken. Where such a majority is present, and the Bill is approved by a simple majority of those voting, it passes the National Assembly. Since this Bill constitutes a money Bill, it follows these constitutional requirements for passage prior to consideration by the National Council of Provinces.
The National Council of Provinces (NCOP) then considers the bill, although its role in amending money bills is limited by Section 77(2) of the Constitution, read with the Money Bills Amendment Procedure and Related Matters Act 9 of 2009. Where both houses concur, the proposed rate change is adopted subject to final assent by the President.
4.5. Presidential Assent and Enactment
Pursuant to Section81 of the Constitution of the Republic of South Africa, 1996, a Bill passed by Parliament must be presented to the President of South Africa for signature. Upon the President’s assent, the Bill becomes an Act of Parliament. In accordance with Section 81(3), the Act must be published promptly in the Government Gazette, and it takes effect on the date of publication or on a date determined in terms of the Act. This process ensures the finalization of legislation and marks its official commencement date.
Once signed, the revised VAT rate becomes enforceable, and the South African Revenue Service (“SARS”), established under the South African Revenue Service Act34 of 1997, implements the change in accordance with its statutory mandate. In particular, Section 4(1) of the SARS Act authorizes SARS to administer, implement, and enforce South Africa’s tax laws. SARS fulfills this role by updating its systems, issuing compliance guidance, and ensuring that taxpayers adhere to the newly enacted VAT rate.
4.6. Ongoing Oversight
Parliament may require periodic reports from the Minister of Finance on the impact of a VAT adjustment. If issues arise post-implementation - such as unintended economic consequences - Parliament retains the authority to amend the legislation or introduce additional relief measures.
5. HISTORICAL EXAMPLE: THE 2018 VAT INCREASE
In 2018, South Africa’s VAT rate was increased from 14% to 15%. This adjustment followed the constitutionally mandated procedure:
- Proposal and announcement during the Budget Speech;
- Introduction of the draft Rates Bill in the National Assembly;
- Committee review and public consultation;
- Debate and approval in both the National Assembly and the NCOP;
- Presidential assent and enactment through the Rates and Monetary Amounts and Amendment of Revenue Laws Act 21 of 2018.
Although the measure was contentious, Parliament’s strict adherence to the constitutional and statutory procedural requirements, including those set out in Section 77 of the Constitution and the VAT Act, ensured its legal validity. Subsequent mitigation efforts included an expanded list of zero-rated items and adjustments to social support measures.
6. CONCLUSION
The 2025 reversal of the proposed VAT rate increase underscores the importance of adhering to the legal and constitutional framework governing tax legislation. The high-level court challenge and associated parliamentary deliberations reflect the checks and balances integral to the legislative process.
Any future decision to modify VAT - whether an increase or decrease - must be undertaken through the formal mechanism outlined by the Value-Added Tax Act 89 of 1991 (as amended), the Constitution, and parliamentary rules on money bills. Transparent procedure, coupled with adequate public participation, is central to ensuring the validity and enforceability of any such fiscal policy changes.
This memorandum is issued for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. For specific queries or representation concerning VAT legislation or related matters, please contact us.