South Africans will pay 16% VAT by the 2026/27 financial year, following two planned increases over the next two years. This was announced by Finance Minister Enoch Godongwana during the National Budget Speech earlier today.
During his speech, Godongwana apologised for the previous postponement of the Budget Speech, describing it as regrettable but indicative of the challenges within a multiparty government. However, he noted that the delay provided an opportunity for further debate on strategies to grow the economy for the benefit of all South Africans.
“As much as the debate has been dominated by the proposed increase to value-added tax (VAT), the bigger discussion must focus on how we grow the economy to benefit the majority. The truth is that our economy has stagnated for over a decade, with GDP growth below 2%,” he said.
After careful consideration, the government has decided to implement the VAT increases to fund essential sectors. Further deferring funding in these areas would compromise its ability to meet constitutional obligations.
To raise the necessary revenue, the government proposes increasing the VAT rate by 0.5 percentage points in 2025/26, followed by another 0.5 percentage point increase the next year.
The minister also announced that the government would not be making inflationary adjustments to personal income tax brackets, rebates, or medical tax credits. These measures will generate R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27.
“We thoroughly examined alternatives to raising the VAT rate. By opting for a marginal VAT increase, its distributional effects and economic impact were carefully considered. This increase is the most effective way to prevent further spending cuts while ensuring we can extend the social wage,” Godongwana said.
