On Thursday, Finance Minister Enoch Godongwana announced that National Treasury will no longer be increasing the VAT from 15 to 15.5% that was proposed in the National Budget to plug the R58 billion fiscal deficit.
Image: Jairus Mmutle / GCIS
This past week South African consumers cheered the scrapping of the 0.5% Value Added Tax (VAT) increase, meant to kick in on 1 May, many businesses are rolling back on their announcements made to customers that fees would be increasing.
On Thursday, Finance Minister Enoch Godongwana announced that National Treasury will no longer be increasing the VAT from 15% to 15.5% that was proposed in the National Budget to plug the R58 billion fiscal deficit.
Thomas Lobban Director at Ibex Consulting, a division of Latita Africa, told Business Report that with the reversal of the proposed VAT increase, South African consumers will foreseeably continue paying 15% VAT instead of the expected 15.5%.
Lobban said that this will offer some short-term financial relief, especially for low- and middle-income households which are already grappling with rising living costs.
"At the same time, however, it has further been announced that the broadening of the basket of zero-rated goods and other measures would also need to be reversed. This, to a certain degree, could offset the extent of the good done by the VAT increase reversal. For businesses, the reversal can help maintain pricing stability. It also means they can avoid the hassle of updating accounting systems, modifying contracts (if this were even possible), and/or dealing with possible disputes over prices changing due to the expected VAT increase. However, companies that had already made system and other changes in anticipation of the increase may now face extra costs to revert those adjustments," Lobban said.
"Businesses and banks that have already informed customers about the expected VAT increase will need to urgently issue updated communications to correct this. It is important they explain that the VAT rate is now expected to remain at 15%, and that any earlier notices or adjustments are no longer valid,"Lobban further added.
Following government's VAT announcement, companies in South Africa who had already informed customers of pricing increases rolled back their communications.
Discovery South Africa sent out emails to customers informing them that pricing would not be changing.
The email with the subject line: Important Update: Retraction of VAT Increase Communication, read, "Following the latest announcement from the National Treasury, the previously communicated VAT increase, which was expected to take effect on 1 May 2025, will no longer happen. This means there will be no change to the VAT rate applied to your Discovery Insure premiums. Please disregard the earlier communication about updated schedules and premium adjustments.
"There is complexity regarding the reversal, from a legislative standpoint, and which also casts some doubt over whetherthe VAT increase will be successfully reversed in time (before 1 May 2025). This could result in some turbulence for businesses and the South African Revenue Service (SARS) alike. However, given that the message from government is clear, that this increase will be reversed, the diligent approach may be to accept this and keep to the current VAT rate, subject to further updates," Lobban added.
He said that businesses that have already made systematic changes in preparation for the VAT increase should re-update their internal systems, pricing structures, and compliance processes accordingly.
"If the reversal does not occur in time (i.e., before 1 May), but is instead implemented afterward, it raises the question of whether the reversal would be backdated or simply repealed from that point onward. And even so, how this should be done," Lobban said.
He said that in theory, a consumer that has made an over-payment of VAT should be refunded or credited.
"However, this would not practically be possible in every case. For example, how does a grocer know which of its customers to refund? There should be no invoices that are issued by businesses, including the increased VAT rate, before its implementation on 01 May. Therefore, there is still time for the reversal to be enacted beforehand," Lobban further said.
BUSINESS REPORT