Scrapping of VAT increase, widely welcomed

The VAT hike would have been 0.5% this year, starting in May, and adding another 0.5% next year, bringing it to 16% from the current 15%. Other measures to offset the revenue shortfall and ensure fiscal sustainability will now be investigated.

The loss of the expected VAT revenue does not undermine South Africa’s fiscal sustainability. In its statement, the National Treasury said that the Finance Minister would table revised versions of the Appropriation Bill and Division of Revenue Bill in the coming weeks.

Absa says the scrapping of the VAT increase has the effect of shaving about 0.2pp (percentage points) off the full-year average consumer price inflation (CPI) this year and next year and that the slowdown in core inflation was broad-based and is another clear signal that inflation pressures are currently contained.

The National Automobile Dealers’ Association (NADA) welcomes the announcement that the proposed 0.5% VAT increase will not proceed. In an economy where consumers are financially strained, this decision offers much-needed relief and avoids adding pressure that could hinder GDP growth.

This encouraging development comes on the back of a series of positive indicators: inflation figures released yesterday are the best in five years and well below the target band; oil prices have remained below $70 a barrel, contributing to a fuel price that is 8.8% lower than in 2024; and South Africa is approaching 40 consecutive days without loadshedding. In addition, the temporary suspension of US tariffs for 90 days and the commencement of formal engagements between the South African delegation and the US government mark a potential turning point in trade relations.

Although we continue to face many headwinds, together, these signs point to improving economic stability and greater certainty. They provide a solid foundation to shift focus to driving inclusive economic growth, creating opportunities and rebuilding confidence in the South African economy.

“NADA believes that policy consistency and a stable economic environment are essential to restoring confidence across the value chain – from manufacturers and dealers to business and consumers,” says NADA Chairperson, Brandon Cohen.