South Africa Withdraws Planned VAT Hike Amid Political Opposition

South Africa’s government has withdrawn its planned value-added tax (VAT) increase, initially set to take effect on May 1, following significant opposition from political parties and public outcry. The original proposal aimed to raise VAT by one percentage point over two years to address a budget shortfall, but was met with resistance, especially from the coalition partners African National Congress and Democratic Alliance. The government cited extensive consultations with political parties and recommendations from parliamentary committees in its decision to maintain the VAT rate at 15%. Economic research and civil society groups warned that the increase would disproportionately impact lower-income households and potentially worsen poverty and inequality. With the reversal, the finance ministry anticipates a revenue shortfall of approximately 75 billion rand ($4.02 billion) over the medium term and will revise budget legislation and expenditure plans accordingly. The episode highlights the influence of collective public and political action on fiscal policy.