On 2 April 2025 the majority of the South African National Assembly voted in favour of the adoption of the fiscal framework of the National Assembly's standing committees on finance.
The fiscal framework, in its current form contains two major issues, these being:
- Unadjusted tax brackets. While the fiscal framework does not increase personal income tax rate in the current financial year, personal income tax revenue will nevertheless increase due to tax brackets remaining unadjusted. This bracket creep has not garnered the same level attention as the VAT issue discussed below; and
- 1% VAT increase over a two-year period. In terms of the fiscal framework as tabled and approved by the National Assembly, VAT will be raised annually by 0.5% over the next two years, raising the VAT rate from the current 15% to 16%.
The key requirement for the passing fiscal framework report in terms of the Money Bills Amendment Procedure and Related Matters Act 9 of 2009 ('the Act') is that the standing committees on finance must within 16 days of the national budget being tabled by the Minister of finance, either adopt or amend the report. Adoption (and by necessary inference, rejection) and amendment, are the only two options available to the National Assembly. The Act does not make any provision for the fiscal framework to be passed subject to conditions (i.e. recommendations and adoption of future amendments). Any agreement to later amend the fiscal framework as passed by the National Assembly is non-binding, although it may be persuasive as between the parties to such an agreement.
Some parties in the National Assembly voted for the passing of the fiscal framework report on the basis that they will support the adoption of the division of revenue bill only when the fiscal framework is amended. The amendments include the adjustment of personal income tax brackets and the removal of the VAT increase. Other revenue measures have been proposed to plug the revenue gap anticipated from these amendments. On 8 April 2025, Mr Fikile Mbalula declared that consultations on the tax proposals will be held and concluded within a 5 day period.
While there remains uncertainty on whether or not the personal income tax brackets will be adjusted, and the VAT hike removed, the legislative process has been complied with. Any amendments to the fiscal framework will require the passing of a new bill which seems unlikely given the time frame required for such a process.
Therefore, on 1 May 2025, VAT in South Africa is likely to increase by 0.5% for the current fiscal year.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
