Great news for cash-strapped South Africans… The proposed VAT increase, due to come into effect on May 1, has been canned.

According to a media statement issued by National Treasury, Minister of Finance Enoch Godongwana will shortly introduce measures to reverse the VAT hike that has had South Africans up in arms since it was announced during his Budget Speech.

National Treasury announced today that the minister will shortly introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill, which proposes to maintain the VAT rate at 15% from May 1. A 0.5% hike was previously announced.

“The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees. By not increasing VAT, estimated revenue will fall short by around R75b over the medium term,” said National Treasury.

As a result, the minister has written to the Speaker of the National Assembly to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill, to propose expenditure adjustments to cover this shortfall in revenue.

“Parliament will be requested to adjust expenditure in a manner that ensures the loss of revenue does not harm South Africa’s fiscal sustainability.

“The decision not to increase VAT means that the measures to cushion lower-income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited. To offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward,” National Treasury said.

The minister expects to introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks.

“The initial proposal for an increase to the VAT rate was motivated by the urgent need to restore and replenish the funding of critical frontline services that had suffered reductions necessitated by the country’s constrained fiscal position.

“There are many suggestions; however, some of them would create greater negative consequences for growth and employment and some of them, while worthwhile, would not provide an immediate avenue for further revenue in the short term to replace a VAT increase.

“National Treasury will, however, consider these and other proposals as potential amendments in upcoming budgets as mechanisms to increase the resources available.”

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