What South Africans are losing out on from the VAT hike reversal

While the reversal of the VAT hike is good news for households in South Africa, the decision also means the withdrawal of the expansion of the basket of zero-rated food items.

This is the concern from the Consumer Goods Council of South Africa (CGCSA), which argues that expanding the basket of items exempt from Value-Added Tax (VAT) should remain in the budget. 

National Treasury announced on Thursday (24 April) that the minister will “shortly” introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill), which proposes to maintain the Value-Added Tax (VAT) rate at 15% from 1 May 2025.

This is in place of the proposed 0.5 percentage point increase to VAT announced in Budget 2.0 and passed in the fiscal framework earlier in April.

“The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees,” it said.

Following this announcement, the Western Cape High Court officially suspended the VAT increase in South Africa on 27 April. 

The Court announced that the VAT increase of half a percentage point on 1 May 2025 and the second half-a-percentage-point increase in April 2026 are suspended.

It was ruled that the increase in VAT would be suspended pending the passing of legislation regulating the VAT rate.

It also set aside the resolutions of the National Assembly and the National Council of Provinces to accept the Standing Committee on Finance’s 2025 Fiscal Framework report.

The decision by the Western Cape’s High Court means that the VAT hike will no longer take place, and that the Treasury will soon need to table a new 2025 Budget.

However, other benefits, such as expanding the food items exempt from VAT, will also be withdrawn and returned to the table.

No expansion of the zero-rated basket

The CGCSA said it cautiously welcomed the decision to stop the planned 0.5% VAT increase, which was due to become effective on 1 May 2025.

CGCSA CEO Zinhle Tyikwe noted that the decision will significantly ease the financial burden on South Africans, especially poor households.

However, Tyikwe highlighted that the reversal has come at a significant cost to retailers, while consumers will be left with no expansion in the zero-rated food items. 

In South Africa, certain basic food items are zero-rated, meaning they are exempt from Value Added Tax (VAT). 

These items, which are meant for human consumption, are designed to help lower-income households manage food costs.

In his budget statement, Finance Minister Enoch Godongwana proposed expanding the basket of VAT zero-rated food items.

This expansion would include canned beans and peas, dairy liquid blends and certain organ meats (offal) from sheep, pigs, goats and poultry. 

However, in the VAT increase reversal statement of 24 April 2025, the National Treasury announced that the move also means these items will not be added to the zero-rated basket.

“No VAT increase means that the measures to cushion lower-income households against the negative impact of the rate increase need to be withdrawn and other expenditure decisions revisited,” it said.  

Tyikwe said this concerns the council and its members, as many South Africans are hard-hit by the cost of living.

“The zero-rating of the additional products would have gone a long way toward cushioning consumers, improving healthy eating and lifestyles, and improving food security,” said Tyikwe.

“Expanding the basket of VAT zero-rated food items would have greatly benefited consumers.”