‘The speech’s failure to reference how the government plans to deal with increased trade barriers, combined with the VAT hike, indicates a lack of comprehensive trade policy reform.’
Some of the key decisions Finance Minister Enoch Godongwana announced during the Budget Speech on Wednesday could hurt cross-border trade.
Godongwana’s two announcements—a 1% increase in Value-Added Tax (VAT) by 2026 and no inflationary adjustment to income tax brackets—could make South Africa less competitive.
Verto, a cross-border payments service provider, highlights that the two decisions could increase the cost of goods and services for export markets, and that will result in making SA products less competitive in regional markets where price sensitivity is a major factor.
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How will the Budget 2025 decision impact companies
Cornelius Coetzee, Verto’s director for South Africa, said companies in border areas or within the Southern African Development Community (SADC) region may be more directly impacted by changes in local VAT rates, especially for products imported or exported to and from SA.
“While these policies will boost domestic demand for basic goods, businesses that depend on importing or distributing cross-border goods may not benefit as much from social support initiatives.
“Furthermore, if demand from neighbouring countries remains subdued due to lower purchasing power, South African exporters may see less interest in their products in those markets.”
Budget 2025 will fall short if there’s no action
He added that unless the government takes bolder steps to address the specific needs of cross-border traders and introduces financial reforms that reduce the cost of doing business internationally, the budget’s impact will fall short of stimulating sustainable growth in SA’s export-driven industries.
“Despite some positive intentions in the budget, South Africa’s cross-border trade and financial systems remain under pressure.
“The lack of substantial reforms targeting high trade costs — whether through better customs efficiency, trade financing, or improved regional agreements — means businesses will continue to face significant challenges.”
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Potential impact of US tariffs
Coetzee points out Godongwana’s failure to address the potential impact of additional United States (US) tariffs and the VAT increase on products and services and the broader economy as a notable omission.
“Given the crucial role trade dynamics and global partnerships play in South Africa’s economic outlook, this gap raises important questions about the government’s preparedness to mitigate challenges that could have significant consequences for local businesses and international trade relations.
“The country’s ability to compete internationally depends on the regulatory and financial environment.
“The speech’s failure to reference how the government plans to deal with increased trade barriers, combined with the VAT hike, indicates a lack of comprehensive trade policy reform.
“In a world where trade policies are increasingly shaped by regional cooperation and bilateral agreements, South Africa must not only focus on improving domestic infrastructure but also enhance its financial sector and trade policies to adapt to changing global realities.”
Direct impact on businesses
He added that businesses involved in cross-border remittances will face increased costs from the VAT increase and the tariff-induced decline in demand for their goods or services.
“This double impact could drive up the cost of doing business, reducing the potential for growth in global business participation and remittance volumes.
“Additionally, the government needs to provide businesses with tax relief measures or subsidies to mitigate the financial impact of the VAT increase, particularly for those in industries that depend on imported goods or materials.
“Customs duty reforms could also be considered to ease the strain on import-dependent industries.”
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