South Africa’s finance ministry abandoned its proposal to increase value-added tax (VAT) following fierce political opposition, according to Reuters.
The decision, announced on Thursday, keeps VAT at 15% and marks a retreat by the Treasury, which had sought to raise the tax by 1 percentage point over two years to bolster state revenues.
The African National Congress (ANC) and Democratic Alliance (DA) – the two largest parties in the governing alliance – had clashed over the planned hike, with the DA taking legal action and voting against the budget in parliament. Finance Minister Enoch Godongwana will now submit revised fiscal legislation in coming weeks, though the U-turn leaves a 75 billion rand ($4 billion) revenue shortfall over the medium term.
The reversal follows what the ministry called “extensive consultations” with political parties, but exposes deepening rifts in the unprecedented ANC-DA partnership. While DA leaders hailed the backdown as a victory, senior party figure Helen Zille warned of persistent “mistrust” threatening the coalition’s future.
The Treasury had warned that blocking the VAT rise could destabilise public finances. Smaller parties had advocated alternative austerity measures, but officials argued spending cuts alone couldn’t quickly compensate for lost revenue.
