Impact of VAT increase suspension on local government budgets
Parliament's Settlement on VAT Hike: Implications for Municipal Budgets
Image: Armand Hough / Independent Newspapers
Following the scrapping of the planned 0.5% increase in Value-Added Tax (VAT), initially scheduled to come into effect on May 1, 2025, several previously approved municipal budgets have also been set aside, further complicating local government financial planning.
This suspension means that not only is the national budget process delayed, but local government budgets—previously approved and scheduled for implementation—are also temporarily on hold, affecting service delivery and development projects at the municipal level.
The ripple effects underscore the broader economic and administrative uncertainty created by the legal and political developments surrounding the VAT hike.
On April 27, 2025, Parliament entered into an out-of-court settlement concerning the contentious VAT hike and the broader 2025 Fiscal Framework.
The settlement, sanctioned by the Cape High Court, suspends the implementation of VAT increases and sets aside the resolutions adopted by Parliament's two Houses—the National Assembly and the National Council of Provinces—regarding the Fiscal Framework.
This means that the original Appropriation Bill, which details government spending and allocates funds to various departments, has been withdrawn and is no longer before Parliament.
As a result, Parliament said the scheduled budget votes—crucial steps in the legislative process, are currently on hold.
It also stated that municipal budgets, already approved for the current financial year, are being set aside.
What Happens Next?
Parliamentary spokesperson Moloto Mothapo explained that a new Appropriation Bill and revised budget instruments must be drafted and introduced through the upcoming Budget Speech.
Once these are tabled, the legislative Houses must reschedule their review and approval processes.
'A new Appropriation Bill and revised budget instruments will need to be introduced, after which the budget votes will be scheduled afresh by the legislative framework and parliamentary procedures,' Mothapo stated.
He emphasised that the National Assembly and the National Council of Provinces must review and restructure their programs accordingly.
The respective Programme Committees will set new timelines to ensure that all legislative steps are completed efficiently and that the budget is passed within the legally prescribed timeframes, in line with the Money Bills and Related Matters Act, 2009.
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