Impact of VAT increase suspension on local government budgets

Following the scrapping of the planned 0.5% increase in Value-Added Tax (VAT), initially scheduled to come into effect on May 1, 2025, several previously approved municipal budgets have also been set aside, further complicating local government financial planning.

This suspension means that not only is the national budget process delayed, but local government budgets—previously approved and scheduled for implementation—are also temporarily on hold, affecting service delivery and development projects at the municipal level. 

The ripple effects underscore the broader economic and administrative uncertainty created by the legal and political developments surrounding the VAT hike.

On April 27, 2025, Parliament entered into an out-of-court settlement concerning the contentious VAT hike and the broader 2025 Fiscal Framework. 

The settlement, sanctioned by the Cape High Court, suspends the implementation of VAT increases and sets aside the resolutions adopted by Parliament’s two Houses—the National Assembly and the National Council of Provinces—regarding the Fiscal Framework.

This means that the original Appropriation Bill, which details government spending and allocates funds to various departments, has been withdrawn and is no longer before Parliament. 

As a result, Parliament said the scheduled budget votes—crucial steps in the legislative process, are currently on hold. 

It also stated that municipal budgets, already approved for the current financial year, are being set aside.

What Happens Next?

Parliamentary spokesperson Moloto Mothapo explained that a new Appropriation Bill and revised budget instruments must be drafted and introduced through the upcoming Budget Speech. 

Once these are tabled, the legislative Houses must reschedule their review and approval processes.

“A new Appropriation Bill and revised budget instruments will need to be introduced, after which the budget votes will be scheduled afresh by the legislative framework and parliamentary procedures,” Mothapo stated.

He emphasised that the National Assembly and the National Council of Provinces must review and restructure their programs accordingly. 

The respective Programme Committees will set new timelines to ensure that all legislative steps are completed efficiently and that the budget is passed within the legally prescribed timeframes, in line with the Money Bills and Related Matters Act, 2009.

Timing and Finalisation

A statement issued by Parliament stated that it is actively engaging with the Executive to determine an appropriate date for the tabling of the revised budget. 

Mothapo added that the Minister of Finance is anticipated to table the new budget instruments within the next few weeks, aligning with the Parliament’s commitment to fiscal oversight, legal compliance, and certainty.

The Role of the DA, EFF, and the Courts

The legal dispute over the VAT hike involved opposition parties, notably the Democratic Alliance and the Economic Freedom Fighters. 

Both parties challenged the timing and legality of the VAT increase, which they argued was implemented without proper parliamentary approval.

The case was settled out of court, with the court order effectively suspending the VAT hike and setting aside the fiscal resolutions that had authorised it. The terms of the settlement include:

Suspension of the VAT increase was initially announced on March 12, 2025, which proposed a 0.5% increase from May 1, 2025, followed by a further 0.5% increase from April 1, 2026.

Setting aside the 2025 Fiscal Framework resolutions passed by Parliament’s Houses on April 2, 2025 enables Finance Minister to table the budget afresh, pending legislative approval.

thabo.makwakwa@inl.co.za

IOL Politics