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

As South Africa prepares for a proposed 0.5% increase in value-added tax (VAT), a law expert has warned it may be wise to hold off on implementation while the matter is contested in court.

The country’s VAT rate is expected to rise to 15.5% from 1 May, following Finance Minister Enoch Godongwana’s announcement during his budget speech.

Section 7(4) of the VAT Act enables the hike. This act permits tax rate changes to take immediate effect upon the minister’s announcement – even before Parliament has fully processed the budget.

DA heads to court over VAT rate hike

Although negotiations are ongoing to reverse the proposed VAT hike following Parliament’s adoption of the fiscal framework last week, the Democratic Alliance (DA) has taken the matter to the Western Cape High Court.

The party is seeking to set aside the decision to adopt the fiscal framework and has also applied for an urgent interdict to prevent the VAT increase from taking effect.

In addition, the DA wants section 7(4) to be declared invalid and unconstitutional.

Interdict against VAT increase to succeed?

Constitutional law expert Advocate Mark Oppenheimer told The Citizen that if the court grants the DA’s application for an interdict, the VAT increase would be suspended temporarily.

Oppenheimer said this will allow “the legal process to run its course without the public being subjected to a potentially unlawful tax increase”.

“The core of the constitutional challenge rests on the principle that taxation must be subject to parliamentary oversight.

“The argument is that it is not constitutionally permissible for a single member of the executive — namely, the minister of finance — to determine the VAT rate without input or approval from Parliament,” he explained.

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Oppenheimer highlighted that even if the high court found Section 7(4) unconstitutional, such a declaration would not take effect immediately.

Confirmation by the Constitutional Court (ConCourt) would be required for the ruling to have a “binding force”.

“It would be prudent for the minister to refrain from implementing any VAT increase while the matter is under judicial consideration — especially where a court has already found the relevant provision to be unconstitutional.”

Rule of law

Oppenheimer added that pressing ahead with the VAT hike could have far-reaching implications for public trust.

“Proceeding in such circumstances could undermine public confidence in the rule of law and the constitutional requirement for accountability in fiscal matters.

“This case raises significant questions about the separation of powers and the democratic principle that taxation decisions should be made by elected representatives, not unilaterally by members of the executive.”

Tax expert weighs in

Gerhard Badenhorst, director of tax and exchange control practice at Cliffe Dekker Hofmeyr, said the DA’s prospects of success will hinge on the strength of its legal arguments.

“Although valid legal arguments are raised [by the DA], one must also consider the legal arguments that will be raised by the minister of finance in reply to the [party’s] founding affidavit.

“I would not want to venture any prediction of the chances of success because the outcome of any court process is uncertain,” he told The Citizen.

Badenhorst explained that if the high court grants the interdict, the matter could still be escalated to the Supreme Court of Appeal (SCA) or taken directly to the ConCourt.

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He clarified that the VAT increase would go as planned if the minister applied for leave to appeal.

“The VAT rate increase will only be suspended if the court grants the order for interim relief in this regard as sought in the founding affidavit.

“If the court does not grant the interim relief sought, the VAT rate increase takes effect on 1 May 2025.   

“In my view, the high court will not suspend the application of section 7(4) and compel Parliament to amend the legislation before Constitutional Court confirmation, as this is not the relief sought in the founding affidavit,” Badenhorst concluded.

Read the DA’s founding affidavit below:

DA VAT case by Molefe Seeletsa on Scribd