South Africa Coalition Proposes Reduced VAT Increase to Break Budget Impasse

The National Treasury reduced the VAT tax increase to end the government coalition conflict in South Africa. The Finance Minister Enoch Godongwana presented an updated budget on Wednesday that requires South Africa to raise VAT by only 0.5 percentage points starting in May 2023. He also noted the next increase of 0.5 points would occur by 2026.

The Treasury made major changes to its tax plan when canceling the original idea to boost VAT by 2 percentage points this year. The ANC put up strong resistance against this measure. At the last minute, John Steenhuisen revealed that the Democratic Alliance would not endorse the finance minister’s revised budget document during his presentation.

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The budget fight becomes South Africa’s biggest challenge to its ruling coalition formed in 2024 when the ANC lost its lead vote for the first time since ending apartheid politics. For the budget to pass approval the ANC requires help from another large political party but problems reach further including the Economic Freedom Fighters. The Treasury insists on supplementing budgets because ongoing healthcare, education, and railroad infrastructure requirements cannot be covered through reduced expenditures.