VAT increase: by grinding the face of the poor?

by Jesuit Institute South Africa

In the Budget Speech on 12 March 2025, one of the aspects raised by Minister of Finance Enoch Godongwana was the increase in the VAT rate to 16% by April 2026. At the same time, the government will be “expanding the basket of VAT zero-rated food items to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry and other animals.” 

VAT is regressive and a blunt tool.  While Godongwana assured Parliament that alternatives to raising the VAT rate were examined thoroughly and “the government is very aware of the cost-of-living pressure faced by households,” it is the lower and middle-income individuals that will be most affected as VAT takes a larger percentage of their income in comparison to higher-income individuals. 

People experiencing poverty face high food, fuel, electricity, and transport costs, and their already meagre incomes and now reduced disposable income cannot keep up with inflation. This can lead to a domino effect, potentially resulting in further poverty, reducing access to basic necessities, and intensifying inequality. Increased VAT rates can lead to food insecurity and reduced intake of nutritious food options, resulting in malnutrition and related illnesses.

The question we need to ask of every budget is: how will the government finance its constitutional and political obligations? Considering the move in this year’s budget to increase the VAT rate, the government is choosing to place the burden of the budget on the shoulders of the poor, those who are already struggling with high living costs. 

The Prophet Isaiah confronts those who place the burden on the poor. He says: “It is you who have devoured the vineyard; the spoil of the poor is in your houses. What do you mean by crushing my people, by grinding the face of the poor? says the Lord of hosts.” (Isaiah 3:14-15)

It would have been better to implement a more progressive tax policy that increases the tax burden on higher-income earners to mitigate the impact on lower—and middle-income earners. Does the fear of pushback from wealthy elite South Africans (including those in government) mean that the vulnerable must be bullied into taking the fall?

Considering fiscal discipline, the government continues to spend more money than it collects in revenue. This is a grave concern that needs to be addressed, especially given the government’s wasteful and inefficient expenditures. What measures are being enforced to stop corruption? 

We stand to raise more money by recapturing what has been looted from the treasury during the years of state capture. 

Perhaps the Finance Minister should heed his own words: “We know that we must earn the taxpayer’s trust every day by spending public money with care and ensuring that every rand collected is spent on its intended purpose.”