Frank Sebatana | Senior Legal Tax Consultant, PKF Durban

The Timeline: 19 February 2025 || 24 April 2025

The Government of National Unity (GNU) displayed grave disunity as the original Budget was due on 19 February 2025 but was unprecedently postponed to 12 March 2025 to allow Cabinet to reach consensus on the initial 2 per cent VAT increase proposed to come into effect on 1 April 2025 by the Minister. On 12 March 2025, the Minister in the National Budget Speech announced that the VAT rate will increase by 0.50 per cent as from 1 May 2025. This led to an urgent application being heard on 23 April 2025, in the High Court of South Africa Western Cape Division, Cape Town (the Court).

The legislative provision which the Court had to consider is discussed briefly below:

Section 7(4) of the VAT Act provides:

“If the Minister makes an announcement in the national annual budget…that the VAT rate specified in this section is to be altered, that alteration will be effective from a date determined by the Minister in that announcement, and continues to apply for a period of 12 months from that date subject to Parliament passing legislation giving effect to that announcement within that period of 12 months.”

The argument put before the Court regarding the unconstitutionality in summation is that the Minister’s empowerment to amend (provisions of section 7(1) of the VAT Act that sets) the VAT rate for 12 months (from 1 May 2025) by announcement in the annual national budget speech is irreversible for 12 months and consequently the Minister (an executive of Parliament) is improperly delegated with a plenary power reserved exclusively for Parliament by the Constitution of the Republic of South Africa.

Reversal of VAT rate increase?

On 24 April 2025, in the early hours of the morning the National Treasury published a media statement announcing that the Minister of Finance (the Minister) will introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill), which proposes to maintain the Value-Added Tax (VAT) rate at 15 per cent from 1 May 2025. The Rates Bill was published on 24 April 2025, but still awaits approval and promulgation to be enforceable law.

The swift decision by the Minister and National Treasury still requires judicial consideration whether the VAT increase reversal was legally and procedurally correct, but what is the factual position for the VAT rate effective 1 May 2025 is it 15 per cent or 15.5 per cent? Only the Court can determine with certainty if there are sufficient legal grounds to reverse the VAT rate increase retrospectively and if so, does the 24 April 2025, Rates Bill allow for ”meaningful public participation” an important lawmaking principle.

The 0.50 per cent VAT increase reversal announcement is without doubt positively embraced by the Public. However, the decision or rather attempt by the Minister to solve one problem (reducing economic hardship) has potentially created a bigger problem (legal uncertainty, particularly constitutional ambiguity) as it remains unclear what legislative provision empowers the VAT increase reversal by the Minister as announced by National Treasury in the Media Statement on 24 April 2025 and consequently what procedural mechanisms ought to be employed by the Minister when exercising said public power?

Has the VAT rate increased? – The Court must continue to establish the rule of law by handing down a judgment

It is understood that the legal teams of the Minister and the DA are considering an out of court settlement. However, could this be in the interest of the Country and if so, how and when will constitutional clarification for future national Budget announcements by the Minister be obtained?

South Africa’s democratic dispensation has reached a legislative political governance framework cul-de-sac. The ways of old under a majority ruling political party can no longer function in the GNU dispensation. The use of Latin phrases often creates unnecessary confusion with audiences (often, those who are not legal practitioners) but there are few circumstances wherein the use of a Latin phrase befittingly descripts what should not happen, Interest Republicae Ut Sit Finis Litium translates to:

“it is in the interest of the State that there be an end to litigation”.

Notwithstanding, the release of the media statement announcing that the Minister will propose to maintain the VAT rate at 15 per cent, it remains in the interest of the Republic of South Africa that the Court hand down judgment before or on 29 April 2025 (which is now more than ever before necessary considering the decision of the Minister to reverse the VAT increase) in response to the constitutional challenge to section 7(4) of the VAT Act 89 of 1991 (VAT Act) and the Minister’s decision to increase VAT, by announcement in the National Budget on 12 March 2025.

There is indisputable need for judicial clarification of the meaning and validity of section 7(4) of the VAT Act and to establish the correct process for the raising of a tax rate by the Minister and the role of Parliament in a functioning multi-party government where not all policies are aligned.

The shortcomings of the current legal framework is that it does not provide for any legal recourse or legal certainty to the extent that (the GNU’s) Parliament does not approve the Minister’s announced fiscal framework or the actual Rates Bill which creates an unconstitutional restriction for (the GNU’s) Parliament because it cannot amend the Minister’s announced rate for 12 months until such time that the Minister tables another National Budget. The constitutional ambiguity is rooted in this legal uncertainty that does not give any directive pronouncement if (the GNU’s) Parliament does not pass legislation giving effect to the Minister’s proposed rate change. However, does the prior rate remain or does the announced rate remain for 12 months?

In every annual National Budget announcement up until now, there was a party in the majority and the process was controlled by the Party Whip. In the new era (the GNU) this is no longer the case and the law needs to be redrafted and in the context of the parties currently acting outside of the scope of the law. The separation of powers dictates that the Judiciary (the Court) ought to intervene and provide the necessary direction (to the Legislature) for the redrafting of what has been argued to be an unconstitutional legislative provision and provide the necessary direction (to the Executive) to ascertain what is permissible in the circumstances the country has been in during the 2025 National Budget and the VAT rate increase battle.

Accordingly, the discussion on the process of a tax or VAT increase needs the clarity of an impartial Court and as such we would argue that it is best for the parties to remain subject to the decision of the Court rather than to find an out of Court settlement to solve the immediate problem, a problem which has been averted albeit outside of the legal framework.

Please note that this article does not constitute professional advice. Should you require assistance, please contact your nearest PKF office.