If you’ve been following the news, you’ve probably heard that the government is increasing VAT. But what does that really mean for you and me?
Let’s break it down in simple terms so you can understand how this change will affect your wallet.
What is VAT?
VAT stands for Value-Added Tax. It’s a tax added to most things you buy, like food, clothes, and services. Right now, the VAT rate in South Africa is 15%.
That means if you buy something for R100, you pay R15 in VAT, making the total R115.
What’s changing?
In the 2025 Budget Speech, the Minister of Finance, Enoch Godongwana, announced that VAT will increase by half a percentage point in 2025/26 and another half percentage point in 2026/27. By 2026/27, the VAT rate will be 16%.
So, if you buy something for R100 in 2026/27, you’ll pay R16 in VAT instead of R15. That extra R1 might not seem like much, but it adds up over time, especially for big purchases.
Why is VAT increasing?
The government needs more money to pay for important things like healthcare, education, and infrastructure (roads, water, electricity, etc.).
These services are under pressure, and the government can’t keep delaying funding them.
The Minister explained that raising VAT is the most effective way to get the extra money needed without hurting the economy too much. Other options, like increasing income tax or borrowing more money, could harm job creation and economic growth.
How will this affect you?
Here’s the part we all care about: how will this hit our pockets?
Everyday items will cost more
Since VAT is added to most goods and services, you’ll pay a bit more for things like:
- Groceries (except for basic foods like bread and milk, which are VAT-free)
- Clothes
- Electronics
- Transport (like bus or taxi fares)
- Big Purchases Will Feel the Pinch
If you’re planning to buy something expensive, like a fridge or a car, the extra VAT will make it cost more. For example, a car that costs R200,000 will now have R32,000 in VAT instead of R30,000. That’s an extra R2,000 you’ll need to pay.
But some things are protected
The government knows that higher VAT can hurt poor households the most. To help, they’ve added more items to the VAT zero-rated list. These are basic foods that don’t have VAT, like:
- Canned vegetables
- Dairy liquid blends (like maas or amasi)
- Organ meats (like liver and kidneys)
This means these items won’t get more expensive, which is good news for families struggling with high food prices.
Social grants are increasing
To help cushion the blow, the government is increasing social grants (like old age pensions and child support grants) above inflation.
This means grant recipients will get a bit more money to help cover the rising costs of living.
Why VAT and not something else?
You might be wondering, why not just tax the rich or big companies more?
The Minister explained that South Africa already has high personal and corporate tax rates compared to other countries. Raising these taxes could scare away investors and make it harder to create jobs.
Borrowing more money wasn’t an option either because the country’s debt is already high, and the cost of borrowing would be too expensive.
The bottom line
The VAT increase is a tough but necessary decision to help fund essential services like healthcare, education, and infrastructure.
While it means we’ll all pay a bit more for goods and services, the government is trying to protect the most vulnerable by increasing social grants and keeping basic foods VAT-free.
So, when you see prices going up, remember that the extra money is (hopefully) going towards improving the country’s services and making life better for everyone in the long run.
Stay informed, budget wisely, and keep an eye out for those VAT-free items when you shop!
