Godongwana gives notice to table new bill to reverse VAT hike

Finance Minister Enoch Godongwana has officially gazetted his intention to table a new bill to reverse the proposed 0.5% VAT increase.

The notice was published on Thursday in the Government Gazette, a communication channel for announcing new legislation and regulations.

VAT

It follows Treasury’s announcement shortly after midnight on Thursday that the proposed VAT increase had been reversed and will remain at 15%.

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

Treasury said Godongwana has written to the Speaker of the National Assembly, Thoko Didiza, to indicate that he is withdrawing the Appropriation Bill and the Division of Revenue Bill and proposing expenditure adjustments to cover this revenue shortfall.

ALSO READ: Treasury reverses proposed VAT hike, will remain at 15%

Concerns

With Godongwana scrapping the VAT increase, questions have been raised about where he will find the money, over the medium term, to make up for the R75 billion shortfall caused by his midnight decision.

Maarten Ackerman, chief economist at Citadel, said it is important to remember that in February, when the first budget was presented, the National Treasury assumed economic growth of about 1.7%. However, with the trade war raging, that number is down to 0.8%.

“That immediately, without the VAT increase of 0.5%, puts huge pressure on the revenue side of the budget. The IMF already said there is no way that we will keep our debt-to-GDP below 80%, and its view is that it is heading for 88%.”

Ackerman says the minister’s challenge now is to reach an agreement on where to cut to balance the budget without the revenue they budgeted for.

“Our fiscal position actually deteriorated significantly, not due to the cancellation of the VAT increase, but more in terms of a much lower growth environment.”

Fiscal framework

While the adoption of the fiscal framework caused friction within the government of national unity (GNU), with the DA and FF Plus voting against it, Treasury said it will “consider” other proposals as potential amendments in upcoming budgets.

The DA approached the courts to have the 0.5 percentage point VAT increase announced by Godongwana in his March Budget Speech set aside and to interdict its implementation on 1 May.

While Godongwana did not oppose the adoption of the fiscal framework, he challenged both the interdict and the action against the VAT Act.

Additional reporting by Ina Opperman

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