In the key development of South Africa's tourism and hospitality industry, the National Treasury Ministry announced that the Value Added Tax (VAT) tax rate remains at 15%, halting the proposed increase that raised widespread concern. The decision was confirmed shortly after midnight on Thursday, ending a two-month political conflict and bringing relief to both businesses and consumers.
Finance Minister Enoch Godonwana introduced the law on May 1, 2025 to reverse previous plans for a VAT hike of 0.5%, followed by another increase in April 2026. The bill amendments to the Fee, Amount and Income Act ensures that the VAT rate remains at 15%.
Winning for the industry and consumers
The proposed increase in VAT will trigger alarms in the hospitality sector, fearing that higher costs will thwart tourists and tension companies, who are still recovering from the economic impacts of recent years. Maintaining the current VAT rate is expected to support the hotels, restaurants, tour operators and related businesses that will remain competitive as a destination for travel and form the backbone of the tourism economy.
The decision follows intense negotiations and legal challenges, including a court application by the Democratic Alliance (DA) to block VAT hikes supported by the Economic Freedom Fighters (EFF). The involvement of the Western Cape High Court underscored the importance of the issue, and DA's settlement with the Treasury paved the way for a reversal.
Financial implications and industry outlook
The Treasury has acknowledged that maintaining the VAT rate will create a budget shortage of R75 billion over the medium term and encourage revitalization of government spending. To address this, Godongwana has withdrawn its budgetary bill and revenue bill, with a revised version soon being introduced. The Treasury emphasized that these adjustments will protect South Africa's financial sustainability while examining alternative revenue streams, such as improving collections through South Africa's revenue services.
For the tourism and hospitality sector, this decision provides much needed stability. “Keeping VAT at 15% is a lifeline for our industry,” said a spokesperson for the South African Tourism Business Council. “We can continue to provide competitive pricing to attract employers, which is important for job creation and economic growth.”
Looking ahead
As South Africa continues to position itself as the best global tourism destination, the unchanging VAT rate shows its commitment to supporting an industry that contributes significantly to GDP and employment. Companies now look to the government to engage with stakeholders and explore sustainable fiscal solutions that do not put undue pressure on sectors that are essential for economic recovery.
With the season of celebration approaching, the hospitality sector is ready for busy times and we are confident that affordability is a key draw for travelers. The Treasury decision is a step towards ensuring that South Africa is an attractive and accessible destination for everyone.
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