Importance Score: 72 / 100 🔴
In a significant policy shift, the African National Congress (ANC), the party of South Africa’s President Cyril Ramaphosa, has rescinded a proposed value-added tax (VAT) increase. This controversial measure had jeopardized the stability of the nation’s coalition administration. The reversal comes amid concerns about its potential impact on the economy and the cost of living for South Africans.
Controversial VAT Increase Withdrawn
The now-abandoned tax hike, initially put forward by the ANC, faced strong opposition from the Democratic Alliance (DA), a key coalition partner in the unity government. The DA had even sought legal intervention to prevent its implementation. Several other opposition parties also voiced their disapproval.
The decision to withdraw the proposed 0.5% VAT increase was made just days before its scheduled implementation date.
Finance Ministry’s Statement
The finance ministry stated this decision followed consultations with political factions and parliamentary members. However, the ministry cautioned that the move would lead to a considerable revenue shortfall.
- Other tax adjustments or reductions in public expenditure may be necessary to address the projected 75 billion rand ($4 billion; £3 billion) deficit.
Impact on South Africans
The abandonment of the tax increase is expected to be welcomed by many South Africans, particularly those already struggling with a stagnant economy and escalating living expenses.
Arguments for and Against the VAT Increase
Finance Minister Enoch Godongwana had championed the increase, asserting it would provide a buffer for the most vulnerable populations against the effects of other tax policies. However, this proposal encountered opposition from various political groups, including prominent figures within his own ANC party, who deemed it ill-conceived.
Minister’s Revised Stance
On Thursday, Minister Godongwana stated that “the determination not to elevate VAT implies that the actions to safeguard lower income households against the probable adverse consequence of the rate augmentation now ought to be revoked and other disbursement verdicts revisited”.
The minister is anticipated to present a revised version of a spending plan in the coming weeks.
In February, Godongwana postponed his budget presentation following considerable resistance to the VAT increase proposal.
The DA contended that such a move would intensify the existing cost-of-living crisis and exacerbate economic disparity.
Challenges for the Government
This dispute arises during a challenging period for the administration.
- Approximately a quarter of South Africans are unemployed and dependent on government aid.
- The treasury has cautioned about increasing strain on public funding.