South Africa could forgo R14 billion ($762.3 million) in additional tax revenue if parliament stops the proposed increase in value-added tax (VAT) in the revised 2025 budget, Finance Minister Enoch Godongwana has warned.
His comments come as the budget proposal faces resistance from both coalition and opposition parties, despite the government scaling back the planned VAT rise from 2% to 1%, spread over two years. This marks the second time in two months that lawmakers have rejected the Treasury’s budget plan over tax increases.
“Where we sit as government, we say we’ve done our job. Now it’s for parliament to make the final call. But if they scrap the VAT increase, which accounts for R14 billion ($762.3 million) in additional revenue, they must also decide what expenditure should be cut,” Godongwana said in an interview late on Wednesday.
The ruling African National Congress (ANC) needs the backing of at least one major party to pass the budget, but its key coalition partner, the Democratic Alliance, remains staunchly opposed to tax rises, as do several large parties outside the coalition.
Despite the impasse, Godongwana said he was open to discussions with lawmakers on potential changes but stressed they must acknowledge the trade-offs involved.
“There will be engagement, which may lead to some amendments in the budget. That is the nature of the process,” he said.
Some politicians have suggested that savings could be made by cutting the size of South Africa’s bloated cabinet, but Godongwana dismissed this as insufficient to fund critical services such as healthcare and education.
The minister acknowledged that the current budget could be one of the most contentious in years, as the government is unlikely to attempt another tax increase soon.
He believes that credit rating agencies will view the budget positively, given that it projects public debt peaking next fiscal year and the deficit narrowing over the next three years.
However, he warned that investor concerns would likely centre on whether the budget can pass through parliament.
The budget battle marks the biggest test yet for the fragile coalition government formed last year after the ANC lost its parliamentary majority for the first time since the end of apartheid.
Beyond the VAT increase, South Africans are also facing a heavier income tax burden, with R18 billion ($980.2 million) in additional personal tax revenue set to be collected.
The partial relief for bracket creep that was initially included in the first budget plan has been scrapped, meaning there will be no inflationary adjustments to tax brackets—not even for low-income earners.
The government expects these tax measures to generate R28 billion ($1.53 billion) in extra revenue in the 2025/26 fiscal year, rising to R44.1 billion ($2.4 billion) in 2026/27.
