South Africa’s government has abandoned a controversial plan to raise the value-added tax (VAT) by 0.5 percentage points, a move that had threatened to fracture the country’s fragile coalition government just days before the increase was due to take effect. The African National Congress (ANC), led by President Cyril Ramaphosa, had proposed the hike to ease pressure on public finances and raise an additional 75 billion rand ($4 billion). But the proposal met fierce resistance from its main coalition partner, the Democratic Alliance (DA), which challenged the measure in court, warning it would deepen inequality and worsen the cost-of-living crisis.
Finance Minister Enoch Godongwana, a key proponent of the VAT increase, confirmed the reversal during a media briefing on Thursday. He noted that the decision followed consultations with parliament and political stakeholders, but warned it would leave a major hole in the national budget.
“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measures to cushion lower-income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited,” Godongwana said.
The finance ministry is now expected to present a revised spending plan in the coming weeks, with the possibility of alternative tax hikes or public spending cuts to offset the revenue shortfall.
Political Fallout and Public Relief
The DA claimed credit for the policy reversal, saying it was a direct result of its legal and political pressure. “This is the clearest indication yet of what it means to give a party like the DA the balance of power in parliament,” said DA Federal Council Chair Helen Zille. “We can stop what’s fundamentally detrimental to the people of South Africa.”
She added that the DA would continue to fight for pro-growth policies, job creation, and fiscal discipline to reduce the burden on taxpayers.
The tax U-turn comes as South Africa grapples with rising unemployment, stagnant economic growth, and high living costs. Nearly one in four South Africans is unemployed, and many households rely on government support. The scrapped VAT increase was part of the ANC’s broader fiscal strategy, with Finance Minister Godongwana previously warning of growing pressure on public finances, including increased debt servicing costs and demands on social programs.
The DA and other opposition parties—including some voices within the ANC—argued the VAT hike would hit the poor hardest, further undermining economic equality in a country still grappling with the legacy of apartheid-era disparities. The withdrawal of the tax plan may provide temporary relief for consumers, but economic analysts warn it raises urgent questions about how the government will balance its budget without deepening public discontent or risking a credit downgrade.
