South Africa Scraps VAT Hike Amid Coalition Crisis

Finance Minister Backtracks to Save Government

South Africa’s Finance Minister Enoch Godongwana has abandoned plans to increase value-added tax (VAT) in a major political retreat to prevent the collapse of the coalition government. The decision came after the Democratic Alliance (DA), the second-largest party in the coalition, threatened to withdraw from government over concerns the tax hike would disproportionately affect the poor.

Political Pressure Forces ANC Retreat

The African National Congress (ANC), led by President Cyril Ramaphosa, had argued the VAT increase from 15% to 15.5% was necessary to address the country’s financial crisis. However, facing opposition from multiple parties and the prospect of parliament rejecting the national budget – an unprecedented move – the ANC was forced to concede.

Economic Relief for Struggling Citizens

The reversal brings relief to many South Africans grappling with a 32% unemployment rate and rising living costs. The ANC, which lost its parliamentary majority for the first time since 1994 in last year’s elections, now governs in coalition with other parties.

Political Reactions to the Decision

The DA celebrated the decision, stating: “We opposed the unjust VAT hike from day one – and South Africa won.” Meanwhile, the Economic Freedom Fighters (EFF) called the situation a “budget fiasco” and demanded Godongwana’s resignation.

Widespread Opposition to Tax Increase

Opposition to the hike came from multiple fronts:

• The Congress of South African Trade Unions (Cosatu), an ANC ally
• The government’s own tax agency, which questioned its effectiveness
• Smaller parties including Action SA, whose support the ANC needed

Political Fallout for ANC

The crisis threatens to further erode the ANC’s declining popularity. Recent polls show:

• 29.7% support (Institute of Race Relations)
• 32% support (Social Research Foundation)

This marks a significant drop from the 58% support the ANC enjoyed in 2019 before falling to 40% in last year’s election.

Future Economic Challenges

The finance ministry now faces the challenge of finding alternative revenue sources, stating it will need to revisit “other expenditure decisions” and cancel planned measures to protect low-income households from the now-scrapped VAT increase.

Source: BBC News