‘Serious option’ on the table as Treasury, Sars seek ways to reverse VAT hike amid legal battle

While Finance Minister Enoch Godongwana continues to oppose a legal challenge against the impending 0.5% value-added tax (VAT) increase, the National Treasury and the South African Revenue Service (Sars) are reportedly working behind the scenes to potentially reverse the hike.

The VAT rate is scheduled to rise to 15.5% on 1 May, but growing political and public pressure has placed Godongwana under strain to abandon the proposed increase.

Should the VAT hike be scrapped, Treasury would need to source R13.5 billion elsewhere to address the budget shortfall.

Treasury, Sars looking at VAT reversal options

According to the Sunday Times, Godongwana is considering a proposal to revise the projected revenue figures in the fiscal framework.

The plan would incorporate a forecast that Sars will recoup funds from outstanding tax debts to cover the gap.

The publication reports that Sars may be able to collect between R20 billion and R60 billion from its debtors by December.

If the plan is implemented, the Treasury could reverse the VAT hike within two months of its rollout.

This reversal would take the form of rebates issued to both companies and consumers who were charged the higher VAT rate during the period of implementation.

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Meanwhile, both Treasury and Sars are reportedly expected to present this proposal to President Cyril Ramaphosa ahead of a key meeting on Wednesday.

This meeting will bring together parties involved in the government of national unity (GNU) to decide on the next steps.

ActionSA national chairperson Michael Beaumont told Sunday Times that the proposal a “serious option” under consideration.

DA challenges VAT hike in court

Meanwhile, the Democratic Alliance (DA) is preparing to take its challenge to the Western Cape High Court in Cape Town on Tuesday, 22 April, seeking to interdict the VAT increase.

The DA’s case aims to overturn Parliament’s adoption of a committee report on the fiscal framework, and stop the VAT hike from coming into effect.

The party is also asking the court to declare Section 7(4) of the VAT Act unconstitutional.

This section of the Act allows for a VAT rate change to take immediate effect following the finance minister’s announcement, even before the full budgetary process in Parliament has been concluded.

READ MORE: Here’s why constitutional law expert says VAT hike should be postponed

While Godongwana is not opposing the adoption of the fiscal framework, he is challenging both the interdict and the action against the VAT Act.

In his answering affidavit, the minister asserted that the VAT increase decision “cannot be interdicted at this stage” and argued that the relief being sought is “moot”.

He further argued that the DA had not fulfilled the legal criteria required for an interim interdict.

Godongwana also contended that the party’s constitutional argument was “misdirected” and “bad in law”.