Godongwana Says There’s No Way Around VAT Hike as Budget Crisis Looms

South Africa’s Finance Minister Enoch Godongwana has stood firm on the controversial 0.5% increase in value-added tax (VAT), scheduled to take effect on May 1, saying he has no alternative if the country is to maintain fiscal stability.

“If I had alternatives to the 0.5%, I would be second guessing my fiscal framework,” Godongwana said in an interview with eNCA. “I presented a fiscal framework, and I am confident that I would not have presented it if I had alternatives.”

But the increase from 15% to 15.5% VAT is driving a wedge through South Africa’s fragile government of national unity (GNU) — a political alliance between the ruling African National Congress (ANC) and the Democratic Alliance (DA), among others.

DA Files Lawsuit to Block VAT Hike

The Democratic Alliance has taken legal action to block the VAT increase, opposing the fiscal legislation the National Assembly passed on April 2. According to DA spokesperson Karabo Khakhau, the case will be heard in court on April 22.

“We will be in court on Tuesday,” said Khakhau. “The DA has not made a decision whether to leave or remain in the GNU. We await the outcome of the case and a report back from the ANC.”

Rands and Risk: Investors Watching Closely

The political rift has unsettled investors and added pressure on the South African rand, with concerns rising over the GNU’s stability. The DA’s opposition has raised fears that should the party exit the coalition, it could pave the way for more radical elements — like the Economic Freedom Fighters (EFF) — to gain influence.

The stakes are high: scrapping the VAT hike would create a R13.5 billion shortfall in the national budget. Treasury officials say they’ve found no feasible way to plug the gap without raising taxes.

Talks Stall, Alternatives Fade

According to ANC insiders, smaller coalition partners who helped pass the first round of fiscal legislation are now reconsidering their support — on condition that the VAT increase is reversed. The ANC is banking on the DA softening its stance ahead of May 6, when Parliament reconvenes to vote on the next set of budget bills.

If the DA walks away from the GNU, the ANC may turn to parties like ActionSA and Build One South Africa, possibly offering to withdraw the VAT increase in 2026 in exchange for short-term support in 2025.

Coalition at a Crossroads

With budget credibility and coalition unity both on the line, the outcome of the DA’s court challenge could shape South Africa’s fiscal future — and determine whether the GNU holds together or falls apart.

For now, Godongwana is resolute: South Africa needs the VAT hike to fund its commitments and stay on track.

{Source: BusinessTech}

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