President Ramaphosa responds to growing calls to cancel South Africa’s VAT hike, says Treasury may not find alternative solutions

President Cyril Ramaphosa has cast serious doubt on the feasibility of scrapping the looming VAT increase, stating that the Treasury has found no viable alternatives to replace the anticipated R28 billion in revenue. This comes despite mounting political pressure and a growing public outcry over the impact of higher taxes on struggling South African households.

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Speaking on Sunday at an African National Congress (ANC) event in Johannesburg, Ramaphosa addressed the VAT debate head-on, acknowledging that while the National Treasury is actively reviewing various proposals, a reversal of the VAT hike appears unlikely.

“In the end, we will look at ways and means of seeing whether that is possible or not. From current examination, Treasury has said having looked at various areas where they can look, it doesn’t seem to be so. However, the proposals from the various parties are being taken very seriously,” Ramaphosa told reporters.

Background: What the VAT Increase Means

The VAT increase, due to take effect on 1 May 2025, is a central feature of the recently passed national budget. Treasury estimates that raising VAT will bring in an additional R28 billion, which is crucial to closing fiscal gaps and funding key government programmes such as education, healthcare, and social welfare.

Currently sitting at 15%, South Africa’s VAT is among the more politically sensitive tax instruments due to its broad impact on consumers, especially the poor and working class. Critics argue that the hike will worsen economic inequality and squeeze household budgets that are already stretched due to inflation and high unemployment.

Opposition Parties Push Back

Opposition parties, most notably ActionSA, have submitted alternative strategies to the National Treasury. On Sunday, ActionSA revealed that it had tabled a plan with Finance Minister Enoch Godongwana, outlining measures that could generate the needed revenue without resorting to a VAT increase.

These alternatives include cutting government waste, plugging procurement loopholes, and reforming underperforming state-owned entities. According to ActionSA, these measures could cumulatively account for or exceed the R28 billion target.

Despite these interventions, Ramaphosa made it clear that while the government is open to reviewing credible proposals, Treasury’s internal analysis has not identified practical solutions that could replace VAT revenue in the short term.

A Non-Binding Recommendation and a Binding Reality

The budget passed in Parliament last Wednesday included a non-binding recommendation that Treasury explore alternative revenue-generating measures. However, this recommendation carries no legal obligation and is unlikely to result in policy changes without clear fiscal substitutes.

As South Africa prepares for the implementation of the VAT hike, economists warn that the poorest citizens will bear the brunt of the decision, especially in a climate of subdued economic growth and rising living costs.

Political Implications and Public Sentiment

This decision places the ANC government in a politically precarious position. While the VAT increase may be fiscally necessary, it risks further alienating voters ahead of upcoming elections. Ramaphosa’s comments are likely to stir debate within the party, especially among members who advocate for pro-poor policies.

Meanwhile, grassroots organisations and trade unions are expected to ramp up pressure on government, with potential protests and legal challenges not off the table.