After first postponing the Budget Speech in February, Minister Godongwana eventually delivered the National Budget Speech yesterday, on 12 March. However, the Budget is yet to be approved by Parliament and, while the process itself is the same as in previous years, the major differentiator this year is that current indications are that the Budget, will not be accepted by Parliament.
More specifically, although the 0.5% Value Added Tax (VAT) increase is lower than the 2% originally proposed in February, opposition parties have indicated that they will not support the increase.
In addition, the Draft Rates and Monetary Amendment Bill, which is normally published on Budget Day, has not yet been published. National Treasury has not provided any indication as to when this will be published and/ or why it was not published on 12 March.
This leaves taxpayers with a very practical conundrum in respect of the implementation of both personal tax rates and VAT.
Employees’ tax
The most urgent question is regarding the taxation of remuneration in March. While the February Budget would have proposed an adjustment of tax brackets and rebates, the current proposal does not make any adjustments. Even though the Budget has not yet been accepted, the more conservative (and recommended) approach would be for employers to keep applying the tax rates and brackets that applied in the 2025 tax year.
VAT rate
However, the VAT increase with effect from 1 May 2025 is a substantially bigger headache.
Section 7(4) of the Value Added Tax Act, 1991 ( VAT Act) deals with the variation of the VAT rate. In terms hereof, if the Minister makes an announcement in the National Annual Budget that the VAT rate is to be altered, that alteration will be effective from the date determined by the Minister in that announcement.
It would have been helpful if Parliament voted on the Budget before 1 May 2025, but based on the current Parliamentary Schedule, this will only happen in May. Tomorrow’s joint meeting with the Standing Committee on Finance, with a Briefing by the Minister of Finance on the Budget, should provide some insight into the current state of the political negotiations, but the actual vote will only take place after the 1 May effective date.
In terms of section 7(4), the 15.5% rate will apply for a period of 12 months from 1 May 2025, subject to Parliament passing legislation giving effect to that announcement within that period. If Parliament does not pass the legislation as envisaged, the rate will return to 15% at the end of the 12-month period.
This means that the increased VAT rate as announced in the Budget Speech will apply for at least a 12-month period, even if legislation is not implemented by Parliament. While this will no doubt frustrate opposition parties, this makes sense from a practical perspective, given the nature of VAT as an indirect tax.
To, conclude, despite current uncertainty regarding whether the Budget will be adopted by Parliament, in the absence of a legal, political or other intervention, VAT vendors are in terms of section 7(4) obliged to implement the increased VAT rate with effect from 1 May 2025.
