Retailers have begun sending customers price increase notices “with regret”, but the VAT hike — due to come into effect on May 1 — remains uncertain.
On Tuesday, there will be a legal showdown in the Western Cape High Court between the DA, the EFF, the finance minister and the speaker of parliament, with the two political parties seeking to halt the increase.
According to the DA, the VAT hike is unlawful because the section of the VAT Act that allows the minister to adjust VAT is “patently unconstitutional”. It said the VAT rate, now set at 15%, was contained in legislation; only parliament could amend legislation and only parliament could raise taxes.
The DA rushed straight to court the day after parliament voted to accept reports from its finance committees — the national assembly’s standing committee and the national council of provinces’ select committee — approving the “fiscal framework”, the National Treasury’s budget outline. The EFF then also intervened in the case.
The two parties want an interim order suspending Enoch Godongwana’s decision to raise the VAT rate, pending a full hearing on whether the VAT Act is constitutional.
The DA has also asked for a final order to set aside parliament’s decision to accept the reports — on the basis of which the legislature accepted the fiscal framework — and to order that they be sent back to the committees for “reconsideration”.
The acceptance of the fiscal framework by parliament is the first step in approving the national budget. The framework sets out estimates of all revenue proposals, expenditure, borrowing and how debt will be repaid. Once the fiscal framework is accepted, the other budget legislation is constrained — it must conform to what is in the framework.
But the two parties said the process followed when the fiscal framework was considered by the two parliamentary committees — in a joint, eight-hour meeting on April 1 — was shambolic and unlawful.
In particular, said the DA, the Money Bills and Related Matters Act requires the reports to “include a clear statement accepting or amending the framework”.
But among other procedural flaws, the reports the committees voted on did not contain such a statement. The statement was inserted after the meeting was over. Also, the draft that was voted on was not the final draft presented to parliament.
In court papers, the DA’s Helen Zille said the court should therefore set aside the “fundamentally flawed” decisions by the two houses of parliament to accept the fiscal framework.
Severe and far reaching consequences if VAT hike is halted.
— Finance minister Enoch Godongwana
But the speaker of parliament, Thoko Didiza, said the DA and EFF’s cases on the parliamentary process were “entirely without merit”. At the joint meeting, the committees had considered the fiscal framework. Proposals to amend it were made by the DA, EFF and MK Party. But these proposals were not supported by the majority of the committee.
Only one recommendation — by ActionSA — that the VAT hike be reconsidered, got majority approval. This was a non-binding recommendation, it was not an amendment to the fiscal framework. All of this was included in the reports, said Didiza.
“As at April 1, there was a single fiscal framework in place. The role of the committees was either to accept the fiscal framework or amend it. There is no uncertainty or ambivalence in the proceedings that this is precisely what the committees did — the result of which is reflected in the acceptance of the report,” she said.
But Zille said there was “dire confusion among committee members as to what version of the report they were being asked to vote on, and — most importantly — whether they were accepting or amending the fiscal framework”.
On ActionSA’s recommendation, Zille said it was not consistent with the Money Bills Act to adopt a report that both accepts a fiscal framework without amendment and simultaneously makes a recommendation that would mean amending it.
“The two positions are mutually inconsistent,” she said. The EFF's Omphile Maotwe agreed, saying the committee “can only accept or amend ... it cannot accept and make recommendations”.
In his court papers, Godongwana responded to the attack on his decision to adjust the VAT rate, saying the DA’s case was “misdirected”. He said the VAT Act did not give the minister the power to amend legislation.
“Instead, it grants me temporary and conditional authority to adjust the rate for 12 months, subject to parliament’s power to enact legislation.”
If parliament does not approve the adjustment, it lapses, he says. And if the VAT hike were halted, even temporarily, this would have “severe and far-reaching” consequences.
The 2025/26 budget is based on the assumption that the VAT increase would generate about R13.5bn in additional revenue, he said. If it were halted, the state would be left without the funds it needed to meet budgeted spending commitments.
“Government would be immediately forced either to cut expenditure or to increase borrowing,” he said. Spending cuts “would likely fall on essential education, healthcare, housing and social protection programmes. These disproportionately affect the poor and vulnerable.”
Increased borrowing would “further strain the fiscus, undermine investor confidence and increase the cost of public debt. These outcomes would interfere with the careful fiscal balancing that underpins the national budget,” he said.
Further, they could trigger “cascading” harms — including “credit rating downgrades, service delivery disruptions and broader economic instability”.
Zille said if the VAT hike went ahead, “every person in South Africa will pay increased taxes on goods that can never be recovered”.
This would occur even though parliament had set its face against a VAT hike. Consumers would be required to pay an unconstitutionally imposed tax that was never due and which Godongwana had effectively conceded was irreversible.
It “cannot seriously be disputed” that raising VAT would disproportionately affect those who were less well off in South Africa, she said, citing recent studies that showed the VAT hike would negatively affect the economy.
The case will be heard by Western Cape judge president Nolwazi Mabindla-Boqwana and judges Andre le Grange and Kate Savage.
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