By Joseph Maluleke – Tax Practitioner and Attorney, Maluks Attorneys, Sandton
The recent proposal by Finance Minister Enoch Godongwana to increase Value-Added Tax (VAT) from 15% to 17% has sparked widespread opposition, culminating in the postponement of the 2025 budget speech to 12 March 2025. The pushback has come not only from the Government of National Unity (GNU) coalition partners but also from businesses, civil society, and economic experts who recognise that this move would place further strain on an already struggling economy.
While the government faces legitimate fiscal constraints, a VAT hike—especially in the absence of broader economic reforms—will deepen economic hardship, disincentivize tax compliance, and accelerate capital flight. South Africa does not have a revenue problem; it has a growth and compliance problem. Increasing the VAT rate is not the answer—it will only shrink the consumer base, reduce economic activity, and ultimately undermine tax collection.
VAT: The Wrong Tax at the Wrong Time
VAT is a regressive tax. It disproportionately affects lower- and middle-income South Africans, who spend a higher percentage of their earnings on consumption. In a country where social grants, including the R350 Social Relief of Distress (SRD) grant, already consume more than 60% of the budget, further eroding disposable income will only increase reliance on government support.
Instead of broadening the tax net, an increase in VAT will do the opposite: it will suppress consumer spending, hurt businesses, and slow economic growth. This will lead to lower corporate tax revenues, reduced employment opportunities, and a declining tax base—ultimately worsening the country’s fiscal position rather than improving it.
An Unsustainable Fiscal Model
The core challenge is not that South Africans are under-taxed, but that government spending is unsustainably high while economic growth remains stagnant. The state cannot indefinitely rely on a shrinking group of taxpayers to sustain a growing list of social commitments. The economy must be expanded to create jobs, stimulate entrepreneurship, and broaden the tax base.
The Growth, Employment, and Redistribution (GEAR) strategy of 1996 provides an instructive historical lesson. While it had its shortcomings, it did result in a decade of economic expansion and a period of fiscal surpluses. The problem today is that the government’s approach is the reverse—raising taxes without accompanying economic growth. This is not a sustainable path forward.
The Risk of Driving Taxpayers Away
South Africa’s tax burden is already one of the highest among developing economies. If those already paying taxes feel they are being “taxed to death,” they will either find ways to avoid tax or move their capital to jurisdictions that offer more favourable tax treatment. A country’s tax system should incentivise compliance, not push individuals and businesses towards tax avoidance strategies or offshore tax planning.
If the tax burden continues to rise, more businesses will relocate, restructure, or scale down operations—leading to job losses and a further contraction of the tax base. This is precisely the opposite of what South Africa needs. Instead of increasing taxes, the government should focus on growing the economy, enhancing compliance, and cutting wasteful expenditure.
A Smarter Path Forward
Rather than relying on VAT hikes as a short-term solution, South Africa should pursue the following strategies:
1. Job Creation to Widen the Tax Net: Expanding the workforce means more taxpayers and less dependence on social grants. Policies that incentivise hiring, support small businesses, and attract investment must be prioritised.
2. Boosting Tax Compliance: SARS must focus on closing loopholes, improving collection efficiency, and ensuring that more South Africans enter the formal tax system. The informal economy remains largely untaxed, representing a missed opportunity.
3. Cutting Wasteful Expenditure: Every year, billions are lost to corruption, mismanagement, and irregular spending. Addressing this issue would free up significant resources without burdening taxpayers further.
4. Targeted Fiscal Reforms: Instead of a blanket VAT increase, the government should explore sector-specific levies, luxury goods taxation, or public-private partnerships to generate revenue.
5. Incentivizing Investment: A stable, investor-friendly policy environment will bring much-needed capital into the economy, create jobs, and ultimately contribute to higher tax revenues.
Conclusion: A Call for Economic Growth, Not Higher Taxes
South Africa cannot tax its way out of a fiscal crisis. A VAT increase is a blunt instrument that will do more harm than good, worsening economic hardship, shrinking the tax base, and discouraging compliance. The solution lies in economic expansion, job creation, and responsible fiscal management.
Rather than continuously squeezing an already overburdened taxpayer base, the government must incentivise compliance, restore business confidence, and create a broader and more sustainable revenue base. The focus should be on growth, not extraction. If South Africa is to build a stable and prosperous economy, it must resist quick-fix solutions and instead pursue the bold reforms necessary to unleash economic potential.
Joseph Maluleke is a specialist tax practitioner and attorney at Maluks Attorneys in Sandton, Johannesburg. With over 20 years of experience in tax law and financial strategy, he provides expert advisory services to businesses and individuals navigating South Africa’s complex fiscal landscape.
