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South Africa reverses VAT increase that threatened ANC-DA coalition South Africa reverses VAT increase that threatened ANC-DA coalition
(about 3 hours later)
The party of South Africa's President Cyril Ramaphosa has reversed a controversial proposed value-added-tax (VAT) rise that had threatened the country's coalition government. South Africa's finance minister has dropped plans to increase value-added tax (VAT), in a major climbdown to prevent the collapse of the coalition government.
The hike was proposed by the African National Congress (ANC) but was strongly opposed by the Democratic Alliance (DA), its main coalition partner in the unity government, which had even asked the courts to block it. Other opposition parties also opposed it. Enoch Godongwana's decision came after the second-biggest party, the Democratic Alliance (DA), threatened to quit the government, warning a VAT hike would hurt the poor the most.
The reversal of the proposed 0.5% tax hike comes just days before it was due to take effect. Godongwana, a member of President Cyril Ramaphosa's African National Congress (ANC), had argued the increase was needed as the government was facing a financial crisis.
The finance ministry said the decision came after consultations with political parties and parliament, but warned that it would cause a significant deficit in revenue. But with other parties also rejecting the hike, it raised the prospect of parliament taking the unprecedented step of voting down the national budget, forcing him and the ANC to concede.
It said other tax increases or public spending cuts could follow as a result of the 75bn rand ($4bn; £3bn) shortfall. The climbdown is likely to be a relief for many South Africans, who are already struggling financially because of the high cost of living and an unemployment rate of 32%.
The reversal of the tax rise is likely to be welcome news for many South Africans, most of whom are already burdened by a stagnant economy and the rising cost of living. The ANC lost its parliamentary majority for the first time since since white-minority rule ended in 1994 in last year's elections, forcing it to share power.
Finance Minister Enoch Godongwana had been advocating the increase, arguing it would help cushion the most vulnerable from the effects of other tax measures. The DA welcomed the climbdown, saying it had entered the government "with steel spines and a clear mission: grow the economy and create jobs to rescue South Africa".
But it faced resistance from various political parties – including senior figures within his own ANC party – who viewed it as short-sighted. "We opposed the unjust Vat hike from day one - and South Africa won," it said in a statement.
The DA had also challenged the hike in the High Court, with three judges - who heard the case - expected to give their ruling before the end of the month.
Godongwana had proposed increasing Vat by half a percentage point, to 15.5% with effect from 1 May, saying it would help provide much-needed revenue to improve public services like education and health.
South Africa in 'uncharted waters' as budget splits coalition governmentSouth Africa in 'uncharted waters' as budget splits coalition government
Is South Africa's coalition government about to fall apart?Is South Africa's coalition government about to fall apart?
On Thursday the finance minister said "the decision not to increase VAT means that the measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited". The ANC denied it had bowed to pressure by scrapping the increase.
The minister is now expected to introduce a revised version a spending bill within the next few weeks. The decision had been taken out a of "a shared commitment across party lines that the working class, the poor, and all other people cannot be further burdened in this economic climate", said party spokesperson Mahlengi Bhengu-Motsiri.
In February, Godongwana had to postpone his budget presentation after fierce resistance to the proposal to increase VAT. In a statement, the finance ministry said there would now be a need to revisit "other expenditure decisions" and to scrap "measures to cushion lower income households" from the planned Vat increase.
The DA argued the move would worsen the cost-of-living crisis and increase economic inequality. The Economic Freedom Fighters (EFF), the second-biggest opposition party in parliament, said South Africa had witnessed a "budget fiasco", and the "incompetent" Godongwana should resign.
The DA has welcomed the reversal of the proposed increase, which it says is the result of its court challenge, but it added that the fight was not yet over.
At a media briefing, the party's federal council chairperson Hellen Zille said that this was the "clearest indication yet of what it means to give a party like the DA the balance of power in parliament — so we can stop what's fundamentally detrimental to the people of South Africa".
She said the party would continue to fight to "seek economic growth, job creation and responsible public spending so that the government does not keep on raising your taxes".
The row comes at a challenging time for the government.
Around a quarter of South Africans are unemployed and reliant on government support, and the treasury has warned of mounting pressure on public finances.
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Go to BBCAfrica.com for more news from the African continent.Go to BBCAfrica.com for more news from the African continent.
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