How the Budget Speech Affects VAT—What You Need to Know

When you hear about a VAT increase, what’s your immediate reaction? For many, tax hikes bring a sense of concern and uncertainty. Before panic sets in, let’s take a step back and analyse the bigger picture.

Why Is VAT Increasing?

In the 2025 Budget Speech, Finance Minister Enoch Godongwana confirmed that VAT will increase by 0.5% in 2025/26, followed by another 0.5% increase in 2026/27, bringing the total VAT rate to 16%. The government expects this to generate R28 billion in additional revenue next year to address spending pressures in health, education, transport, and security.

The reasoning behind the VAT hike is simple:

• Alternative tax hikes (corporate & personal income tax) were ruled out as they could stifle economic growth and job creation.
• Government debt is already high (76.2% of GDP by 2025/26), making borrowing an unsustainable option.
• VAT is broad-based and generates more revenue compared to other tax measures.

How Will This Affect You?

A VAT increase means a higher cost of living—from your everyday groceries to essential goods and services. However, to cushion the blow:

• The basket of VAT zero-rated items will be expanded to include canned vegetables, dairy liquid blends, and certain organ meats.
• No increase in the fuel levy for another year, saving consumers approximately R4 billion.
• Social grants are increasing above inflation to help vulnerable households manage rising costs.

What Should Businesses and Consumers Do?

• Businesses should evaluate their pricing strategies and cash flow forecasts to accommodate the VAT increase.
• Consumers should prepare for higher costs by budgeting wisely and taking advantage of VAT-exempt essentials.
• Investors & financial planners should stay informed about fiscal policy changes that could impact long-term financial planning.

Final Thoughts

While a VAT increase is never welcome news, it is a critical step to stabilising South Africa’s economy and funding essential services. By understanding its impact and planning accordingly, both businesses and individuals can navigate these changes effectively.

-Article by: Jonathan Rankin | Wealth Advisor at ASI Financial Services