To resolve tensions within the Government of National Unity (GNU), President Cyril Ramaphosa has suggested a moderate increase in value-added tax (VAT) of between 0.5 and 1 percentage point in the 2025/2026 budget.
According to City Press, this proposal emerged during a recent Cabinet meeting as a compromise following Finance Minister Enoch Godongwana’s initial plan to raise VAT by two percentage points—from 15% to 17%.
Godongwana had justified the hike as essential to funding key government priorities, including public sector wage increases, retaining critical frontline workers, improving the commuter rail system, and ensuring that social grants keep pace with inflation.
Despite exploring alternatives such as higher corporate and personal income taxes, Godongwana stated that these measures would generate less revenue while potentially hindering economic growth and job creation.
The proposal has met resistance within the GNU, particularly from the Democratic Alliance (DA). The party, the second-largest in the coalition, has warned it would vote against the budget in Parliament.
Reports from Rapport suggest that the ANC-led government pushed ahead with the VAT increase despite weeks of signals from the DA that they would not support it.
One of the most contentious points is the future of the R350 Social Relief of Distress (SRD) grant. Godongwana cautioned that without additional VAT revenue, the grant—extended for another year at a cost of R35.2 billion—might be scrapped.
While the DA does not oppose social support, it has proposed transforming the SRD grant into a Job Seekers’ Allowance targeted at those actively looking for work. The party argues that South Africa’s tax base is too narrow to sustain further increases without discouraging private sector investment and harming the economy.
Instead of tax hikes, the DA has put forward cost-cutting measures that could save the R60 billion expected from the VAT increase, including:
- Slashing government advertising budgets by 50%
- Reducing travel and catering expenses for officials by 33%
- Freezing hiring for non-essential government positions
- Auditing government payrolls to eliminate “ghost” employees
- Conducting a three-month spending review to eliminate wasteful programs
The DA insists that better financial management—rather than higher taxes—will strengthen public services while maintaining economic stability. Their message is clear: Don’t raise taxes—improve tax collection.
The DA has also supported a South African Revenue Service (Sars) proposal that government provide the taxman with more funding to upgrade its systems and increase tax compliance.
“Increasing tax compliance from 63% to 67% can generate R60 billion per year,” the DA said.
Sars commissioner Edward Kieswetter has repeatedly appealed for additional funding to improve the agency’s tax collection capabilities.
The entity has estimated that tax dodging costs the country around R800 billion annually.
Sars modelling predicted that it could collect R450 billion to R460 billion extra if it received funding to modernise its systems.
Kieswetter has explained that Sars will need continuous funding for the agency’s digitalisation to keep up with tax crime.
“Once you suspend funding, the end result will always be the suspension of innovation and regression against the progress of other administrations,” Kieswetter said.
In his original budget speech, Godongwana said that R3.5 billion would be allocated to the agency to modernise its ICT systems to enhance revenue collection and improve tax compliance “well into the future.”
However, it is unclear how much funding Sars wanted to improve its tax compliance rate sufficiently to ward off further tax increases.
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