JOHANNESBURG: The South African finance ministry said on Thursday the government had abandoned a plan to increase value-added tax that had been rejected by the ANC's main coalition partner.
The planned hike in VAT caused fractures within the 10-party unity government that the African National Congress cobbled together after the May 2024 general election.
"The decision to forgo the (VAT) increase follows extensive consultations with political parties and careful consideration of the recommendations of the parliamentary committees," the ministry said.
"By not increasing VAT, estimated revenue will fall short by around 75 billion rand ($4.0 billion) over the medium-term."
The finance ministry said it would propose "expenditure adjustments" to make up the shortfall and propose revised legislation in the next few weeks.
The centre-right Democratic Alliance (DA), the second-largest party in the unity government, had filed a legal appeal to stop the increase.
Finance Minister Enoch Godongwana proposed in March to raise VAT by one percentage point to 16 percent by the 2026/27 financial year.
This was to be achieved in two steps, with a 0.5-point increase for the 2025/26 period and another for the following year.
The finance ministry said on Thursday its now-ditched plan to raise VAT had been "motivated by the urgent need to restore and replenish the funding of critical frontline services that had suffered reductions necessitated by the country's constrained fiscal position".
South Africa is the continent's most industrialised nation but the sluggish economy is burdened by an unemployment rate of about 32 percent, one of the highest in the world.
The economy grew by 0.6 percent in 2024 and the International Monetary Fund forecasts growth of 1.0 percent for this year.
The ANC failed to win enough votes in the 2024 election to govern alone, a first since the party took power in 1994 and ended decades of white-minority apartheid rule.
It was forced into an uneasy coalition with the former opposition DA, which now heads six ministries and eight other parties.
The planned hike in VAT caused fractures within the 10-party unity government that the African National Congress cobbled together after the May 2024 general election.
"The decision to forgo the (VAT) increase follows extensive consultations with political parties and careful consideration of the recommendations of the parliamentary committees," the ministry said.
"By not increasing VAT, estimated revenue will fall short by around 75 billion rand ($4.0 billion) over the medium-term."
The finance ministry said it would propose "expenditure adjustments" to make up the shortfall and propose revised legislation in the next few weeks.
The centre-right Democratic Alliance (DA), the second-largest party in the unity government, had filed a legal appeal to stop the increase.
Finance Minister Enoch Godongwana proposed in March to raise VAT by one percentage point to 16 percent by the 2026/27 financial year.
This was to be achieved in two steps, with a 0.5-point increase for the 2025/26 period and another for the following year.
The finance ministry said on Thursday its now-ditched plan to raise VAT had been "motivated by the urgent need to restore and replenish the funding of critical frontline services that had suffered reductions necessitated by the country's constrained fiscal position".
South Africa is the continent's most industrialised nation but the sluggish economy is burdened by an unemployment rate of about 32 percent, one of the highest in the world.
The economy grew by 0.6 percent in 2024 and the International Monetary Fund forecasts growth of 1.0 percent for this year.
The ANC failed to win enough votes in the 2024 election to govern alone, a first since the party took power in 1994 and ended decades of white-minority apartheid rule.
It was forced into an uneasy coalition with the former opposition DA, which now heads six ministries and eight other parties.
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