As the deadline for the national Treasury to find alternatives to the new 0.5% VAT increase approaches, analysts warn that the Democratic Alliance (DA) has lost its negotiating power within the Government of National Unity (GNU).
The DA’s legal challenge is based on two key elements. Firstly, the party argues that the process followed by Parliament’s finance committees was unprocedural, thereby invalidating the adoption of the fiscal framework.
Secondly, the DA seeks to declare section 7(4) of the Value Added Tax Act unconstitutional, claiming it improperly grants the finance minister the authority to impose tax increases without full parliamentary approval.
The ANC's majority enabled the passage of the VAT increase with the help of ActionSA, the IFP, BOSA, and other smaller parties in Parliament’s finance committee.
On Tuesday, ANC secretary-general Fikile Mbalula announced during a press briefing that the party would not expel the DA from the GNU simply because of their opposition to the VAT increase.
Independent political analyst Dr Sandile Swana provided a critical perspective on the implications of this decision.
“If you’re in that situation and say you will not be able to vote for the budget unless some other acts are removed, it will not work because discussions surrounding the VAT hike are effectively off the table for the DA since they decided to use the courts,” Swana explained.
He also emphasised the potential political fallout for the ANC if it maintains its stance on the VAT increase.
“By insisting on this VAT, the ANC risks political suicide. The DA has already tabled known alternatives to address the tax issue, and the ANC's refusal to explore these options could have serious ramifications,” he warned.
Notably, he said that the VAT increase is projected to generate an additional R13.5 billion within South Africa's overall budget of R2.6 trillion.
Swana raised concerns about the relationship dynamics between the ANC and DA, questioning how the ANC can continue collaborating with a party that is actively pursuing legal action against it.
“It’s a serious consideration for the ANC to assess how they work with the DA while it takes them to court over legislation that has been passed and signed into law,” he said.
He suggested that the ANC may need to reevaluate the DA's representation within the cabinet, potentially reducing its seats in Parliament to reflect the current tensions.
As the situation unfolds, Swana critiqued the ANC's economic strategies in light of global financial pressures.
“South Africa is facing significant economic challenges, and the ANC must decide whether to align more closely with business interests or continue down a path that may alienate key stakeholders,” he stated.
Political analyst Professor Sipho Seepe warned that the political landscape surrounding the VAT hike is fraught with tension and that any move to expel the DA from the GNU could provoke retaliatory actions, including threats from the DA to pursue investigations into alleged financial misconduct associated with President Cyril Ramaphosa's Phala Phala scandal.
“The ANC is in the marriage for the sake of being in office. It is directionless and only follows the dictates of businesses invested in the Ramaphosa presidency. On the other hand, the DA has a worked-out plan to deliver the carcass of the ANC to the electorate.”
In the parliamentary vote regarding the VAT hike, the ANC and its allies supported the increase, while the DA, along with the Economic Freedom Fighters (EFF), the uMkhonto weSizwe (MK) party, and the Freedom Front Plus (FF Plus), opposed it.
Following an agreement with ActionSA to support the 2025 Budget, the ANC acknowledged the Treasury's challenges in finding alternatives to reverse the VAT increase.
This agreement stipulates that the VAT increase would be scrapped within 30 days and includes inflation adjustments for personal income tax to prevent bracket creep.
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