The revised Budget speech, delivered by Finance Minister Enoch Godongwana today, announced changes to VAT over the next two years – perhaps, the most crucial point for consumers in his address. But what will Budget 2025 and VAT increases mean for consumers?
Godongwana stated, “To raise the revenue needed, the government proposes to increase the VAT rate by half a percentage point in 2025/26, and by another half a percentage point in the following year. This will bring the VAT rate to 16% in 2026/27.”
The VAT hike will raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27.
JJ van Wyk, Financial Adviser at Momentum Financial Planning (MFP) says of the Budget speech, “The current South African savings system allows for wise investments – even with the proposed VAT hikes. What is the best individual savings investment vehicle for cash-strapped South Africans? It’s important to speak to a qualified investment specialist to see which savings methods address your individual financial requirements best and maximise tax considerations.”
What does the 2025 Budget mean in real terms for individuals?
For every R1,000 spent on VATable goods, consumers will now be paying an additional R5. This isn’t a crippling amount for most South African households, but the implications of the additional revenue for the government are substantial.
In the hands of social grant recipients, there will be monthly increases of R130 for Old Age and Disability Grants, R30 extra for the Child Support Grant, and an additional R70 for Foster Care Grants.
Government also proposes no inflationary adjustments to personal income tax brackets, rebates, and medical tax credits. In plain terms, salaries and revenue won’t diminish from last year.
Was the Budget speech a responsible one?
Van Wyk feels that, overall, the presented Budget was responsible and that the VAT increase could be a good thing for South Africans.
Considering the plans announced in the Budget speech to improve infrastructure, this additional tax should provide more work opportunities to citizens, enabling them to travel further distances from outlying areas. As Godongwana put it, it’s “a bedrock for economic development, a key source of jobs, and an avenue to scale-up service delivery.”
What was lacking from the Budget speech?
Van Wyk is interested to discuss future increases in contribution limits for tax-free savings accounts, pensions, and retirement funds, as these changes would empower households to save more and alleviate financial pressure on consumers.
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