Godongwana’s Vat rewind may hit legal wall

National Treasury and Finance Minister Enoch Godongwana’s early morning announcement, made through a media statement, that he was reversing his decision to increase the value-added tax (Vat) appears to have no legal standing.

The only way to overturn the increase is for Parliament to adopt a new Rates and Monetary Amounts and the Amendment of the Revenue Laws Bill. It is highly improbable that this will happen before 1 May, especially considering the SA public holidays next week.

PwC tax partner Kyle Mandy says that Section 7(4) of the Vat Act operates as the law stands now because the minister announced in the 12 March Budget speech that the rate would increase on 1 May. The legal status of the minister’s media statement released after midnight is “probably zero”.

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Legality vs reality

“The reality is that there are the legal and pragmatic sides to this matter. In the absence of the new bill being promulgated before 1 May, which is nigh on impossible, or an interdict being granted by the high court, it is hard to see that any Vat vendor is going to increase the rate based on pure legality. They would risk having a riot outside their doors.”

This is not an ideal situation, and the whole saga has a “Trumpish feel” to it, Mandy adds.

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Cedric Frolick, the house chair, said on behalf of the speaker of the National Assembly that the speaker and members of parliament in general “have become aware” that the Minister of Finance intends to introduce a new bill proposing to retain the current Vat rate instead of the increase announced in March 2025.

“As a consequence, the minister will also withdraw the current Division of Revenue Bill and Appropriation Bill in order to propose expenditure adjustments. It is expected that the minister will then introduce new bills in the forthcoming weeks.”

Frolick adds that these developments will have obvious consequences for Parliament and the National Assembly’s programme. The effect of this will be the review of the parliamentary programme as it currently stands.

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Parliament is in recess until 1 May, and there are still several public holidays ahead.

ALSO READ: Where will the minister find the money to make up for scrapping the VAT increase?

Unchartered territory

Aneria Bouwer, senior tax consultant at Bowmans, says Vat vendors are currently dealing with a draft bill that still states the Vat rate is 15.5%, and now there is a media statement stating that there will be a new bill proposing that the rate remains at 15%.

“You are stuck with two proposals in the form of a draft bill that has already been published, and the indication of another draft rates bill. From a legal perspective, the reversal of the increase is not something that is provided for in legislation. It really is uncharted territory.”

Gerhard Badenhorst, Vat expert and partner at Cliff Dekker Hofmeyr, says vendors are at their wits’ end because of the legal uncertainty they face.

He has approached National Treasury and the South African Revenue Service for a directive clarifying the correct route. “The reversal must follow a legal process, and I am not sure which process the minister has in mind before 1 May.”

ALSO READ: Economists welcome scrapping of VAT increase

Bartho van Tonder, director at Thomson Wilks Attorneys, says the minister has the power to change the rate and he did this on 12 March 2025.

Section 7(4) does not specifically provide the power to make a further change or withdraw the change within another 12 months. The announced rate change would either be endorsed or changed through Parliament, through the adoption of the relevant bill.

“As noted from the minister’s announcement, the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill will take at least several weeks to finalise. With the Vat rate scheduled to increase to 15.5% next Thursday, there is insufficient time to introduce the bill to prevent the increase in the ordinary course.”

The DA and EFF have taken the minister and parliament to court, challenging the process followed to increase the rate, as well as the constitutionality of Section 7(4).

Given the latest developments, it is uncertain whether the parties will settle the matter out of court or what the status of the case will be.

ALSO READ: VAT U-turn: How businesses felt the brunt of political roulette

It seems that the only effective and certain way that the Vat hike can be halted before the 1 May deadline is for the court to make this order on Tuesday 29 April 2025.

Van Tonder says it appears that this may be the agreement reached between the minister and the DA. The DA confirmed late last night that lawyers acting for the Minister of Finance had approached the lawyers appointed by the DA to propose an out-of-court settlement.

Mandy notes that “as a general proposition” the courts don’t make rulings on moot matters, although that doesn’t apply here as “legally” the media statement does not have legal standing.

This article was republished from Moneyweb. Read the original here.