VAT increases to 15.5% in 2025/26 and to 16% in 2026/27

In efforts to broaden government’s strategy to secure additional funding for several frontline functions, Finance Minister Enoch Godongwana on Wednesday increased the value-added tax (VAT) rate by 0.5 percentage points in each of the next two years to 16 percent in 2026/27.

In response to the tax increase, he says, “To raise the revenue needed, the government proposes to increase the VAT rate by half-a-2percentage point in 2025/26, and by another in 2026/27.”

Godongwana further emphasised the need to ensure that government must be able to fund investments in sectors such as education, healthcare, early childhood development and commuter rail services and infrastructure. The tax proposal is designed to raise R28 billion in additional revenue in 2025/26 plus an additional R14.5 billion in the 2026/27.

Delivering the first Budget Speech under new Government of National Unity (GNU) in Cape Town, Godongwana says, ‘In 2024, the economy grew by only 0.6 percent. Over the medium term, GDP growth is projected to average 1.8 percent.”

The revised VAT increase follows internal disagreements within cabinet members in the GNU over an initially proposed two percentage point hike in the postponed February Budget. That proposal, intended fund immediate projects including hiring teachers, doctors, was ultimately rejected.

National Treasury had estimated that a full two percentage point increase could have generated R58 billion over the next three years.