Finance minister Enoch Godongwana is believed to have decided to withdraw the decision to hike the VAT rate by 0.5 percentage points.
Godongwana is said to have briefed the top ANC leadership about his decision on Wednesday night. The decision will be confirmed after consultations with the ANC and other partners.
The good news for consumers comes after a weeks-long impasse that saw government of national unity partner, the DA, rush to court to oppose the increase. But the U-turn could have serious consequences for the budget as government would have to review expenditure — which may result in spending cuts.
Insiders say should Godongwana cut spending, the biggest casualties could be health and education. Godongwana allocated R298.8bn to the health department and R332.3bn to education.
The VAT rethink could also have implications for Godongwana's continued stay as finance minister. He was not available to comment at the time of publication.
This development comes after marathon meetings between the ANC and some GNU partners. But it appears the DA was not part of those engagements.
Other ANC insiders said Godongwana took this decision after observing court proceedings of the VAT case this week.
“He [Godongwana] has been following the court case. In his view, he will lose. He can’t afford having a court reverse his decision. He is now briefing the top seven that he is reversing the decision,” said an insider close to the talks.
“In so much as the ANC protected him — the decision to raise VAT was not an ANC decision.”
But leaders from other parties say Godongwana's decision was a result of a series of meetings between the ANC and smaller parties.
“An agreement has been reached and it was confirmed that the minister of finance will make an announcement today,” said another senior government leader.
“There were negotiations today in Johannesburg, with the ANC and some of the other parties, from ActionSA to the IFP. We had discussions with regards to the budget impasse and the VAT proposal. We are expecting positive feedback and an announcement that will take us forward.”
One party within the GNU opted to go to court, the other parties didn’t do so, we opted for continued engagement with the ANC as there was more than one round of talks to convince each other
— Party leader
Another party leader said the announcement by Godongwana will outline what should happen in parliament where the minister is expected to engage the speaker.
“One party within the GNU opted to go to court, the other parties didn’t do so, we opted for continued engagement with the ANC as there was more than one round of talks to convince each other,” said the party leader.
“Our approach turned out to be the correct way to do so, if you keep on talking to each other you’ll end up finding each other and that’s what happened. The minister will also explain and outline where the additional sources of funding will be made to cover the shortfall.”
This insider said the decision to reverse the hike just a month after announcing it would have dire consequences for Godongwana.
“The discussion now is how long can you live with a finance minister whose credibility has been tarnished,” said the insider.
The Sunday Times reported at the weekend that the GNU partners were confident that a deal would be reached on the contentious VAT issue.
The South African Revenue Service (Sars) and the National Treasury are this week expected to play a crucial role in a scramble to reverse the 0.5 percentage point VAT increase scheduled to kick in on May 1, and to recoup monies the tax hike would have raised.
The publication reported that Godongwana was said to have “responded positively” to a proposal to amend the estimated revenue in his fiscal framework and include a projection that Sars would collect between R20bn and R60bn from its debtors between now and December.
This additional revenue is expected to give him room to offset the VAT increase, which has created friction in the GNU.
The publication reported that even though VAT was set to increase by 0.5 percentage points on May 1, this new development is expected to see the Treasury reverse the increase within two months of its implementation.
The expectation was that should the proposal be accepted, rebates would be given to companies and consumers that were charged VAT in the period of its implementation.
ANC secretary-general Fikile Mbalula said on Wednesday night that he was not aware of the decision. However, the ANC and other parties are expected to brief the media on the fiscal framework on Thursday morning.
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