Godongwana defends VAT hike in court

File Source: EWN

Finance Minister Enoch Godongwana has come out strongly in defence of his decision to raise the Value Added Tax (VAT) rate by 0.5%, warning in court papers that suspending the increase would carry “severe and far-reaching” consequences for the country’s economy.

Responding to legal challenges by the Democratic Alliance (DA) and Economic Freedom Fighters (EFF) in the Western Cape High Court, Godongwana argued in an affidavit that blocking the VAT increase, set to take effect on May 1, would strip the state of R13.5 billion in revenue and force tough fiscal choices. “The government would be immediately forced to either cut spending or increase borrowing. Both options carry risks. Spending cuts would likely fall on essential education, healthcare, housing, and social protection programmes. These disproportionately affect the poor and vulnerable,” he stated.

The DA has challenged the constitutionality of section 7(4) of the VAT Act, which grants the minister authority to adjust the VAT rate. Godongwana dismissed the challenge as “misdirected” and based on a “fundamental misinterpretation” of the law. “The provision does not confer on the Minister of Finance the power to amend section 7(1). Instead, it grants me temporary and conditional authority to adjust the rate for 12 months, subject to Parliament’s power to enact legislation,” he explained.

He also took aim at the EFF’s legal approach, describing its application as “unsupported” and “unclear.” “It is unclear whether the EFF seeks merely to interdict the report (which so happens to make reference to a VAT rate increase) or whether the EFF seeks to interdict ‘the introduction of the 0.5 percentage points value-added tax increase’,” he wrote.

Godongwana stressed that Parliament will still have the opportunity to debate and vote on the proposed amendment. “While I accept that tax increases are politically difficult, I believe that, when the proposed amendment to section 7(1) is debated, a majority in Parliament will support it as a responsible and necessary fiscal step,” he said.

Both the DA and EFF are contesting the adoption of the 2025 Fiscal Framework and Revenue Proposals, which include the VAT hike, claiming that decisions by the National Assembly and NCOP were “fundamentally flawed” and unlawful.

Godongwana urged the court to dismiss both parties’ applications, arguing that the balance of convenience favours rejecting the interim interdict. “The DA is not without remedy. It may pursue the relief sought in Part B of its notice of motion and, if successful, to ask the Court for any just and equitable relief it deems appropriate. There is no need to grant interim relief now,” he said.

The High Court is scheduled to hear the applications on Tuesday. The ruling will determine whether the VAT increase proceeds as planned or is delayed pending further legal proceedings.