Until recently, South Africa’s VAT (Value-Added Tax) rate was expected to rise from 15% to 15.5% starting 1 May 2025, as part of government efforts to boost revenue. This 0.5% increase, while seemingly small, would have significant implications for consumers—especially in a climate of rising living costs.
However, new reports suggest that the proposed VAT hike may not go ahead after all.
According to Moneyweb and BusinessTech, the ANC has withdrawn its plan to raise VAT by 0.5% following internal backlash and concerns about the impact on lower-income households. Though Treasury has not officially confirmed the cancellation, multiple sources report that the increase is unlikely to happen—at least for now.
Still, it’s helpful to understand what a VAT increase would mean for your pocket...
What Would a VAT Increase from 15% to 15.5% Actually Change?
VAT (Value-Added Tax) is included in the price of most goods and services you pay for daily—from groceries to data plans, insurance admin fees, and entertainment. It’s invisible, but it adds up.
If the VAT hike goes ahead:
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The cost of most goods and services would increase slightly.
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A product currently costing R1,150 (VAT inclusive) would go up to R1,155.
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Over time, this adds up — especially across your monthly bills and shopping basket.
Why Is VAT Considered a Regressive Tax?
VAT is a regressive tax, which means that it takes up a larger percentage of income from low earners than from those with higher earnings.
Let’s break it down:
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If someone earning R5,000 spends R1,000 on taxable goods, that’s 20% of their income.
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Someone earning R50,000 spending the same amount is only using 2% of their income.
So, while the VAT amount is the same in rands, it hurts lower-income households more, because they spend more of their income on basic, taxable goods.
This is why there are concerns about fairness, especially without additional support like increased social grants.
The debate around the hike highlighted these concerns—and likely influenced the ANC’s decision to walk it back.
What Goods and Services Would Be Affected?
If the hike is implemented, these are some of the services and costs that would be affected (and are worth understanding, regardless):
| Details | ||
|---|---|---|
| Cellphone & Data | ✅ Yes | Vodacom, MTN, Telkom, Rain — all VAT-inclusive |
| Fibre & Internet | ✅ Yes | ISPs will apply 15.5% VAT |
| Streaming Services | ✅ Yes | Netflix, Showmax, Spotify — VAT-inclusive subscriptions |
| Gym Memberships | ✅ Yes | Lifestyle services include VAT |
| Insurance Premiums | ❌ No | Premiums are VAT-exempt, but admin/service fees may rise |
| Medical Aid Contributions | ❌ No | Your monthly contributions to schemes like Discovery or Bonitas do not include VAT. |
| Loan Repayments (Home/Car) | ❌ No | Monthly repayments stay the same; admin fees might increase |
What About Store Accounts and New Credit Purchases?
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Existing credit purchases (pre-1 May): VAT was 15%, so your current monthly repayments remain unchanged.
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New purchases (if the hike happened): The 15.5% rate would apply to new purchases, meaning slightly higher repayment amounts.
Even if VAT doesn’t rise this year, future increases are always a possibility, so it’s helpful to know how credit-related costs might shift.
What Will NOT Be Affected by the VAT Increase?
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Residential rent
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Public education fees
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Basic zero-rated foods (maize meal, bread, milk, eggs, fruits & vegetables)
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Interest on home loans, car loans, and savings
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Public transport fares (directly)
Why It Still Matters — Even If the Hike Doesn’t Happen
Even though there is still uncertainty regarding the VAT increase, it’s still an important moment to:
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Understand where VAT exists in your life
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Reevaluate your expenses and where increases would hit hardest
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Identify opportunities to reduce VAT-heavy consumption (like reducing takeaways or subscriptions)
Financial literacy moments like this give consumers a chance to prepare, not just react.
How to Prepare for Possible Future Increases
Whether this increase happens or not, here are a few smart things to do right now:
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Review your monthly subscriptions—cut back where possible
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Prioritise spending on essentials and VAT-exempt goods
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Build (or grow) your emergency fund
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Keep track of admin fees on loans, insurance, and services—these often rise quietly
A VAT increase may or may not come into effect in May 2025, but this moment is a reminder of how quickly tax changes can impact our wallets. Whether you’re a student, a professional, or managing a household—knowing where your money goes gives you power, regardless of policy shifts.
Stay tuned—we’ll keep you updated as more information becomes available from Treasury and Parliament.
