Godongwana consents to court order against VAT increase

Enoch Godongwana, minister of finance, has consented to the court order suspending his decision to increase VAT to 15.5% on 1 May.

The court judgment, which was issued this afternoon, comes after Godongwana issued a press release at fifteen minutes past midnight on Wednesday night stating that he would withdraw the VAT increase.

In a statement issued tonight, National Treasury said the minister of finance and the main respondents in the matter, the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF) agreed to have the matter settled out of court and the Western Cape High Court subsequently ratified the agreement on 27 April.

Godongwana welcomed the court order, according to the statement, as it is “entirely consistent with his announcement on 23 April to suspend the VAT increase”.

Affidavit Godongwana filed earlier today about VAT increase

Treasury said the context to the suspension of the increase is set out in an affidavit the minister filed earlier today in response to the DA’s supplementary affidavit filed on Friday.

*While the substance of the minister’s responding affidavit was to reply to the most contentious points raised by the DA in its submission, a secondary, equally important purpose was to further clarify the rationale behind the proposed increase to VAT, its subsequent withdrawal and the procedural context that should determine the future processes.”

However, the statement makes it clear that Godongwana maintains that his initial budget proposal of 12 March was constitutional and appropriate given “the limited options available to balance fiscal sustainability with service delivery needs”.

Treasury says that recognising that the proposal no longer enjoyed sufficient parliamentary support to pass into law, he decided to withdraw it.

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Salient points in minister’s affidavit

“For the benefit of the broader public and in the interests of setting the record straight, the minister wishes to highlight these most salient points covered in the responding affidavit:

• Following the Speaker’s letter of 21 April, it became clear the VAT increase lacked the necessary political support. The ministry subsequently announced plans to introduce legislation maintaining VAT at 15% from 1 May.
• While proposed reluctantly, the VAT increase was considered less detrimental to economic growth and employment than alternatives examined by National Treasury.
• The withdrawal creates a medium-term revenue shortfall of approximately R75 billion, necessitating decreased government expenditure with likely impacts on service delivery.
• An attempt to reach a confidential settlement with all litigating parties was undermined when the DA made public statements about the approach, risking abandonment of the process.”

According to the statement, the minister welcomes the clarity and certainty the court and court order provided. “Equally, he remains committed to fiscal responsibility and will pursue alternative measures to ensure sustainable public finances.”

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