VAT Rate Change Under Scrutiny Following Court Ruling
The Western Cape High Court has declared section 7(4) of the Value-Added Tax Act unconstitutional, a decision that could significantly impact the future of VAT rate changes in South Africa. This ruling comes after the Minister of Finance announced an increase in the VAT rate from 15% to 17% last year, which was later revised to 16%.
Section 7(4) previously allowed the Minister to announce changes to the VAT rate during the Budget, with the new rate taking effect before Parliament could pass legislation to confirm it. The court ruled that this mechanism amounts to an impermissible delegation of Parliament’s taxing power to the executive, a point emphasized by Judge Matthew Francis, who stated, “It is declared that section 7(4) of the Value-Added Tax Act 89 of 1991 is inconsistent with the Constitution and invalid.”
The Democratic Alliance (DA) had challenged the constitutionality of this section, arguing that taxation powers must remain firmly in the hands of Parliament as the elected representatives of the people. Helen Zille, a prominent figure in the DA, remarked, “Taxation powers, the judgment affirmed, must remain firmly in the hands of Parliament as the elected representatives of the people.”
The court’s ruling has been suspended for 24 months, allowing Parliament time to remedy the defect identified in the legislation. This suspension means that while the ruling is in effect, the current VAT rate of 16% remains unchanged until Parliament can address the court’s concerns.
Historically, the litigation arose from the 2025 Budget, which set the stage for the contested VAT rate changes. The court’s decision reflects ongoing tensions between legislative authority and executive power in South Africa’s governance structure.
Observers note that the irreversibility of VAT, as highlighted by the DA, poses a significant concern. Even if Parliament withholds approval for future VAT rate changes, the public cannot recover the tax paid during the 12-month period following any unilateral changes made by the Minister of Finance.
As the situation develops, the court’s ruling can be referred to the Constitutional Court for confirmation, leaving many questions about the future of VAT rate changes in South Africa. Details remain unconfirmed regarding the specific steps Parliament will take to address the court’s findings and how this will affect taxpayers moving forward.
