South Africa’s government will raise value-added tax (VAT) rate from 15% to 16% by April 2026 to close a growing fiscal deficit and fund essential public services. Finance Minister Enoch Godongwana announced this during his 2025 Budget Speech, confirming that the increase will happen in two stages. The VAT rate will increase to 15.5% on 1 May 2025 and then to 16% on 1 April 2026.
The tax hike is expected to generate an additional R13.5 billion ($736 billion) in the 2025/26 financial year. While the government argues that the increase is necessary to maintain spending on healthcare, education, and security, opposition parties have criticised the decision and expressed concerns about its impact on consumers.
Political resistance and economic concerns
The VAT hike follows months of debate within the coalition government. The Democratic Alliance (DA) and senior members of the African National Congress (ANC) opposed an initial proposal to increase the rate by two percentage points. To ease the economic impact and avoid immediate backlash, the government settled on a gradual increase instead.
DA leader John Steenhuisen has opposed the tax hike, arguing that the government should explore other revenue-generating options, such as selling port concessions and cutting wasteful expenditures. The opposition’s resistance reflects broader concerns that higher VAT will put additional pressure on consumers who are already struggling with the rising cost of living.
To ease the burden on low-income households, the government plans to expand the list of zero-rated VAT items from 1 May 2025. The updated list will include tinned vegetables, dairy liquid blends, and various meats such as poultry, goat, sheep, and swine.
No tax relief as “bracket creep” kicks in
The VAT increase is not the only tax measure that will affect South Africans. The government has also decided not to adjust personal income tax brackets for inflation in 2025/26, a move known as “bracket creep.” This means that workers who receive inflation-linked salary increases could be pushed into higher tax brackets, effectively increasing their tax burden. The measure is expected to bring in an extra R18 billion ($981 billion) in revenue.
Excise duties on alcohol and tobacco will also increase, rising by 6.75% and 4.75%, respectively, outpacing inflation. However, fuel levies will remain unchanged to avoid further financial strain.
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Budget delay signals coalition struggles
The 2025 budget was originally scheduled for February but was postponed to 12 March, marking the first delay in 31 years. The postponement highlights the challenges of governing through a coalition, as disagreements over fiscal policy delayed the final decision.
Meanwhile, South Africa’s economic outlook remains weak. Following years of sluggish economic performance, the Treasury has lowered its growth forecast for 2025 to 1.9%. The country recorded just 0.6% growth in 2024, largely due to a third-quarter contraction in the transport and agriculture sectors.
The government is working to stabilise gross loan debt at 76.2% of GDP in 2025/26 while aiming to reduce the consolidated budget deficit from 5% this year to 3.5% by 2027/28. However, debt servicing costs remain a significant challenge. This year, the government will spend R389.6 billion on debt repayments, more than it allocates to health, policing, and basic education combined.
Balancing fiscal recovery with economic strain
The VAT increase is part of a broader strategy to raise revenue while ensuring the government can continue funding essential services. However, the decision comes at a time when many South Africans are already under financial strain.
By phasing in the increase over two years and expanding zero-rated items. However, with economic growth slowing and political tensions rising, the challenge will be finding a balance between fiscal responsibility and public acceptance.
