Suspending VAT hike would have ‘severe and far-reaching’ consequences: Godongwana

The consequences of suspending the upcoming VAT hike would be “severe and far reaching”, said finance minister Enoch Godongwana in court papers on Wednesday. 

“Government would be immediately forced either to cut expenditure or to increase borrowing. Both options carry risks,” he said. 

Godongwana was responding to the urgent cases by the DA, with the EFF intervening, asking the Western Cape High Court to suspend his March announcement that the VAT rate would increase by 0.5 percentage points on May 1, and to interdict Sars from implementing the decision.

The DA has challenged the constitutionality of the VAT Act, saying that by giving the minister the power to amend the VAT rate, the act has unconstitutionally given a power, which should belong to parliament, to the executive. The power to legislate is a power reserved for elected representatives, the DA said in its court papers. 

But Godongwana said in his answering affidavit that the DA’s challenge to the VAT Act was “misdirected”. The power given by the act is not a power to amend legislation, he said. “Instead, it grants me temporary and conditional authority to adjust the rate for 12 months, subject to parliament’s power to enact legislation.”

Godongwana said even if a court were to find that the rate adjustment did amount to a legislative amendment, it would still pass constitutional muster. This was because of a 2023 judgment of the Constitutional Court in a dispute between Nu Africa Duty Free Shops and the minister of finance.

The judgment decided that it was not automatically unconstitutional for parliament to assign legislative authority to a minister, said Godongwana. Constitutionality depended on the context, and the judgment set out the factors to be considered to test whether an assignment of legislative authority to the minister would be constitutional.

Godongwana said the DA had not assessed the power granted to him under the VAT Act against the principles set out in the Nu Africa judgment. This was fatal to its case, he said. But when the relevant section of the VAT Act was assessed against the Nu Africa principles, it would withstand constitutional scrutiny, he said.   

He said the DA had not made a case for an interim interdict. The DA’s claims that the public’s rights of access to food and healthcare were infringed was not supported by evidence. The VAT system already exempted many essential food stuffs and healthcare items through zero-rating provisions and so protected the most vulnerable. 

Godongwana said the 2025/26 budget was based on the assumption that the VAT increase would generate about R13.5bn in additional revenue. If it was halted, the state would be left without the funds it needs to meet already budget spending commitments, he said.

The consequences would be “severe and far reaching”. Government would have to cut expenditure or increase borrowing. Spending cuts “would likely fall on essential education, healthcare, housing and social protection programmes. These disproportionately affect the poor and vulnerable,” said Godongwana. 

Increased borrowing would “further strain the fiscus, undermine investor confidence and increase the cost of public debt. These outcomes would interfere with the careful fiscal balancing that underpins the national budget,” he said. They could trigger “cascading harms” — including credit rating downgrades and broader economic instability. 

He said the section the DA was now seeking to challenge had been on the statute book for more than nine years and the DA had never sought to challenge its constitutionality before — even when a VAT adjustment was introduced in 2018 by former finance minister Malusi Gigaba. 

“Only after a political disagreement about the contents of the 2025 budget has the DA rushed to court,” he said. The DA was seeking to “reframe a political disagreement as a constitutional crisis”, he said. 

“This is not the proper function of urgent judicial intervention.”