Mantashe Defends Possible VAT Hike
With just a week remaining before Finance Minister Enoch Godongwana delivers the much-anticipated 2025 budget speech, the debate around a potential value-added tax (VAT) increase continues to intensify. The proposal to raise VAT from 15% to 17% has sparked concerns about the financial burden on consumers, particularly lower-income households.
However, Mineral and Petroleum Resources Minister Gwede Mantashe has defended the potential hike, arguing that VAT impacts all citizens, not just the poor. His remarks come amid heated discussions within the Cabinet as the government seeks to address a R60 billion budget shortfall.
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Mantashe’s Stance on the VAT Hike
Responding to criticism about the proposed VAT increase, Mantashe rejected the notion that VAT is primarily a tax on the poor.
“VAT is not a poor people’s tax. Everybody who goes to the shop pays VAT, so it’s everybody’s tax. All we are saying is that you can’t ring-fence a VAT without looking into the need for a revenue,” Mantashe told SABC News on Wednesday.
While defending the proposal, he acknowledged that a 2% VAT hike would be a heavy burden on South Africans, especially in the current economic climate. He emphasized that the National Treasury must present a well-balanced budget on 12 March 2025, ensuring that public spending meets the needs of citizens.
Mantashe further pointed out that tax increases are never popular but argued that the real concern should be how the collected revenue is used to improve public services.
“I’ve never seen anywhere in the world people excited with any tax increase, but what makes a budget not an austerity budget is what is spent on the needs of the people,” he explained.
When asked whether the African National Congress (ANC) supports the proposed 0.75% VAT increase, Mantashe remained cautious, stating that the party’s priority is a balanced budget that enhances public services.
Political Disagreements Over the Budget
The debate over the 2025/2026 budget has exposed divisions within the government. On Monday, Deputy President Paul Mashatile’s office announced that Cabinet had reached an agreement on an alternative budget plan.
However, Democratic Alliance (DA) leader John Steenhuisen contradicted this claim, stating that no final decision had been reached among the Government of National Unity (GNU) partners.
“Constructive discussions on the budget are ongoing. There is no agreement yet, but we are working towards a resolution by 12 March,” Steenhuisen posted on X (formerly Twitter) on Tuesday.
President Cyril Ramaphosa has also weighed in, stressing that compromises will be necessary given South Africa’s challenging fiscal environment and lower-than-expected revenue collection.
Why Increase VAT? Alternatives and Trade-Offs
The government has explored alternative measures to boost revenue, including corporate and personal income tax increases. However, these options were dismissed due to potential negative impacts on investment and job creation.
- Corporate Tax Increases: Raising corporate taxes could discourage investment, slow down job creation, and ultimately reduce government revenue in the long run.
- Personal Income Tax Increases: Higher personal income taxes would generate less revenue than a VAT hike and could reduce consumer spending, further slowing economic growth.
- Increased Borrowing: Taking on more government debt would lead to higher interest rates, adding financial strain to both businesses and households.
In contrast, a VAT increase is viewed as a more efficient and broad-based solution. Since VAT applies to most goods and services, it generates substantial revenue while distributing the tax burden across different income groups.
Public Concerns and Economic Impact
Despite Mantashe’s defense of the VAT hike, many South Africans remain worried about the rising cost of living. A VAT increase would lead to higher prices for everyday goods, affecting households already struggling with inflation and unemployment.
Economists warn that a VAT hike could disproportionately impact lower-income consumers, even if essential goods remain zero-rated (exempt from VAT). Retailers may also pass additional costs to consumers, leading to price hikes on non-essential goods and services.
Consumer advocacy groups have urged the government to explore alternative revenue streams, such as cutting government waste and improving tax collection efficiency. Some economists suggest broadening the VAT base instead of increasing the rate, ensuring that more goods and services contribute to tax revenue without raising the burden on consumers.
Looking Ahead: What to Expect from the Budget Speech
The 2025 budget speech is set to take place on 12 March, where Finance Minister Enoch Godongwana will unveil the government’s official tax and spending plans.
Key areas to watch include:
✅ Whether the VAT hike will be implemented immediately or phased in over time.
✅ Potential relief measures for lower-income households.
✅ Any changes to corporate and personal income tax rates.
✅ Government spending on infrastructure, social grants, and public services.
With ongoing political negotiations, the final budget could still change before it is officially presented. However, one thing is clear: South Africans should brace for potential tax increases as the government grapples with fiscal challenges.
The debate over the VAT hike highlights the difficult balance between raising revenue and protecting consumers. While Mantashe insists that VAT is not a tax on the poor, many argue that it will hurt low-income households the most.
As the budget speech approaches, South Africans will be watching closely to see how the government addresses the country’s financial shortfall while ensuring that economic growth and social welfare remain priorities.
