The VAT increase will proceed as planned on 1 May despite concerns about a necessary Bill not being passed yet.
South Africans should not expect any refunds from the government, even if they pay additional value-added tax (VAT) for a year.
Currently, the VAT rate in South Africa stands at 15%, with a proposed 0.5% increase set to take effect on 1 May as announced by Finance Minister Enoch Godongwana in the budget speech.
Another 0.5% hike will follow in the 2026/2027 financial year, bringing the VAT rate to 16%.
Concerns over VAT hike’s early implementation
Parliament’s Budget Office has raised concerns about implementing the 0.5% VAT increase for the 2025/2026 financial year before the Rates and Monetary Amounts and Amendment of Revenue Laws Bill is passed.
The office warned that doing so could undermine public participation.
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Therefore, it recommended that the increase be implemented only after Parliament approves the Rates Bill.
While Parliament has up to 12 months to pass the bill, the legislative process is typically completed by October.
Legal grounds for the VAT increase
Gerhard Badenhorst, director of tax and exchange control practice at Cliffe Dekker Hofmeyr, confirmed the VAT increase will proceed as planned on 1 May since the VAT Act allows tax rate changes to take effect before the Rates Bill is officially adopted.
He explained that if Parliament does not pass the law within 12 months or rejects the tax hike, the VAT rate would revert to 15% from 1 May 2026.
“This is indeed an absurd situation. It seems that the VAT rate increase can only be stopped before 1 May 2025 with a legislation amendment to the VAT Act.
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“If the VAT rate increase has taken effect on 1 May 2025, then it seems that it can only be reversed during the following 12-month period by an amendment to the VAT Act prospectively from a current date, but not retrospectively,” Badenhorst told The Citizen.
Des Kruger, a tax consultant at Webber Wentzel Attorneys, shared similar sentiments, emphasising that once implemented, the 0.5% VAT increase cannot be reversed.
“It cannot be reversed, but cease to apply if legislation supporting the increase is not adopted by Parliament within 12 months of the date of the announcement,” Kruger said.
No refunds for VAT paid
Kruger also dismissed any possibility of government refunding consumers for the additional VAT they paid if the increase is not approved by Parliament.
“There will never be a situation where the increase is voided retrospectively – so there are no circumstances where the additional VAT will ever need to be refunded,” he said.
Badenhorst agreed, stating: “There will not be an entitlement to claim any refund of the VAT which vendors (correctly) paid to Sars [South African Revenue Services] at the higher rate during the 12-month period, as this VAT would have been duly payable in terms of the VAT Act.”
Business compliance costs
South African businesses will also face significant compliance challenges and costs due to the VAT increase.
“Businesses are severely impacted as they only have a short window period to amend their accounting, billing and reporting systems to be ready in time for the VAT rate increase (basically six weeks).
“These amendments come at a huge cost and effort, and the cost must be absorbed by business as part of the cost to become compliant with the VAT Act.
He further highlighted that the multiple VAT changes, including the possible reversal back to 15%, in the span of 12 months would triple costs for businesses.
“The fact that we now have two rate increases and possibly a reversal back to 15% within a space of 12 months, will triple the cost for businesses,” Badenhorst explained.
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“The transitional VAT rules as to what VAT rate must be applied to which transactions are extremely complex in their application to certain industries, particularly the financial services sector and the non-life insurance industry.
“If businesses are not compliant with these rules, they run the risk of incurring penalties and interest,” Badenhorst added.
Political and economic ramifications
Moreover, independent economic analyst, Professor Bonke Dumisa, also commented on the implications of implementing the 0.5% VAT increase before Parliament passes the budget or related legislation.
He suggested that this move could be seen as “confrontational” and might make opponents of the hike more determined to reject it.
“But I predict that most parliamentarians will reluctantly accept the 0.5% plus 0.5% VAT increase,” he told The Citizen.
“Unfortunately, once a VAT increase is implemented, South Africans will just have to pay it, whether they can afford it or not,” the professor concluded.
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