Author: Dave Beattie
The 2025 budget has been unprecedented in terms of process and drama. During this time of haggling and uncertainty, the man in the street has been the target of most of the proposals made by Treasury. Most taxpayers will say that this targeting is unfair, as a small group of taxpayers already pay a disproportionate amount of the tax collected each year. Dumping more on this small group of people seems undeserved, but then again, is taxation ever fair?
Originally, Treasury proposed a VAT increase of 0.5% now and 0.5% next year. This quickly became a political hot potato that had serious implications for the Government of National Unity (GNU). Court action was instituted and partners in the GNU have fallen out. On the 24th April it was announced by Minister Godongwana that the decision to increase the VAT rate had been reversed. He will shortly introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill), which proposes to maintain the VAT rate at 15% from the 1st May 2025, instead of the proposed increase to VAT announced in the budget on the 12th March.
Treasury believes that reversing the decision to increase VAT will result in a R75 billion budget shortfall, which would demand a reprioritisation of expenditure for the next three years. It is also hoping that any additional revenue collected by the South African Revenue Service will be used to mitigate the downward revision of spending.
The Minister will now propose expenditure adjustments to cover this shortfall in revenue without prejudicing South Africa’s fiscal sustainability. These revisions will be introduced within the next few weeks.
Minister Godongwana has previously stated that National Treasury’s proposal not to adjust the personal income tax brackets and rebates for inflation is driven by the significant fiscal pressures Government is facing. These include the need to boost frontline services like health and education, provide social relief and increase infrastructure spending. According to the Minister, Government is focusing on the alleviation of immediate fiscal pressures and maintaining its commitments to the fiscal strategy. He said that to limit similar budget pressures in the future and safeguard workers’ interests, Government will continue exploring mechanisms to boost revenue collection, such as broadening the tax base and closing tax loopholes.
With the reversal of the previously proposed VAT increase, it is not surprising that there is fear amongst taxpayers about personal income tax increases. It appears that Government will still not tamper with the personal income tax brackets and focus on cutting expenditure. This is the least that stressed taxpayers expect. The Minister should start with the bloated executive or the myriad cases of fruitless and wasteful expenditure instead of threatening cuts to social welfare, health and education. Whether he has the backbone to make sensible decisions will become evident in the next couple of weeks – let’s hope that fiscal discipline takes precedence over politics.