Mass confusion is reigning over the potential of a VAT hike with various reports of it either being suspended for now or coming into effect on May 1. Yet, consumer-facing companies are already telling customers that costs will go up, with the cost of living expected to increase 0.25 percentage points should the new VAT rate of 15.5% come into effect.
IOL has calculated the increase in cost of various items in an average basket based on a survey within the team should VAT of 15.5% be added to prices from May. For every R100 you spend, you will have to fork out an additional 50c.
While the difference between the current VAT amount and the new one based on IOL’s calculations seems minimal each month, at R335 and some change, over a year this adds up to just more than R4 000 – and that’s without taking inflation into account.
Investec chief economist Annabel Bishop has calculated that a 0.5 percentage point increase in VAT will add 0.25 percentage points to the increase in living expenses. Inflation is currently at 3.2% year-on-year as of February and is widely expected to remain within the South African Reserve Bank’s targeted 3 to 6% range over the medium term.
The Pietermaritzburg Economic Justice and Dignity Group’s March 2025 Household Affordability Index found that, had the VAT increase of 0.5 percentage points been implemented already, it would have increased the tax value of its index basket from R323.50 to R334.28. VAT, it said last month, already accounts for 6.1% of the household food basket.
In 2018, when VAT went from 14% to 15%, Statistics South Africa worked out that zero-rated and VAT-exempt items comprise 43.5% of the headline CPI basket which includes 5.5% of food expenditure. At the time, this meant that 56.5% of all items attracted VAT.
The agency has since changed the weighting in the basket and has not updated the potential increase in VAT.
On April 1, political parties agreed to proceed with a fiscal framework that was agreed to between most parties and the ANC – excluding the DA and EFF – by a slim majority of 192 for versus 182 against.
As the EFF and DA – a strange combination of bedfellows – reportedly prepare to go to court to stop an increase in VAT from May 1, Action SA has claimed to have halted its implementation with National Treasury having 30 days from April 1 to come up with alternative proposals.
Independent political analyst, Daniel Silke, told IOL that it’s a very confusing position and there is still a window period during which it can be reviewed. “There is still an opportunity for the VAT increase not to come into practice.”
There is dissension, broadly speaking, between Treasury and the ANC on this matter, Silke said. “Treasury's own workings on the VAT increase should have been ironed out much earlier, or at the very least, they should have been presented within the Government of National Unity much earlier.”
Silke said the entire process had become a “political football” and “it also points to the alternative to VAT being a complete clean-out of government”. Incorporating a VAT hike in the National Budget “was the lazy option in terms of raising the relevant revenue, rather than taking the more politically risky decisions of cutting costs and implementing some sort of governmental austerity,” he said.
Old Mutual chief economist Johann Els queried whether anyone knows what is going on.
IOL