The Budget that never was: What are the rules regarding tax rate changes?

By Louis Botha

It was unprecedented. As a friend put it: Budget Day is like Christmas Day for tax advisors – but this time Christmas did not come, or at least, it was postponed. After the last-minute decision not to table the Budget on 19 February 2025, Budget Day was postponed to 12 March 2025.

The extraordinary events that transpired, including the press briefings (and what was said after them) have been documented by several media outlets. It appears that the postponement was due to disagreement amongst members of the Government of National Unity (GNU) regarding National Treasury’s proposal to increase the rate of value-added tax (VAT) from 15% to 17%. And this is where the story begins.

The past, the present and the future

The process of passing the budget on the one hand, and the amendment legislation on the other hand which is required to change tax rates and tax legislation, happens every year.

The tax legislative cycle for government’s financial year ending 31 March 2025, that is, the 2024/2025 year, started in December 2023 with National Treasury’s hearings on proposals for inclusion in Annexure C of the 2024 Budget Review.

The 2024 Budget Review was tabled on 21 February 2024. Following this, the draft legislation incorporating these proposals was tabled for public consultation, with some of it tabled earlier and some of it tabled later in 2024. The tax legislative cycle for this period (2024/2025) effectively ended in December 2024, when several pieces of amendment legislation came into effect. One of these is the Rates and Monetary Amounts Amendment Act, 45 of 2024, which came into effect on 24 December 2024 (2024 Rates Act). The 2024 Rates Act contained, amongst other things, amendments to the rate of carbon tax and goods subject to customs and excise tax, such as alcohol.

But for the events of 19 February 2025, the tax legislative cycle for government’s financial year ending 31 March 2026 would have likely been similar. Whether there are further changes to the timeline compared to last year and previous years remains to be seen.

The law on tax rate changes

Changes to tax rates, including changes to certain thresholds in tax legislation, are usually contained in the rates legislation, such as the 2024 Rates Act. When there were last changes to the marginal income tax tables for individuals for the 2023/2024 tax period, they were contained in the 2023 rates legislation. However, because of the timeline discussed above, the amendment legislation containing the changes only comes into effect later in the year, although it stipulates the date on which the rate change took effect.

Considering the events of the past week, let’s shift our attention to VAT. The last time the VAT rate changed from 14% to 15% was in 2018. The change was contained in the Rates and Monetary Amounts and Amendment of Revenue Laws Act, 21 of 2018 (2018 Rates Act). Although the 2018 Rates Act only came into effect on 17 January 2019, it stated that section 7 of the Value-Added Tax Act, 89 of 1991 (VAT Act), which contained the rate change was “…deemed to have come into operation on 1 April 2018.”

Some may say that this constitutes legislation that applies retrospectively, but what may be a lesser-known fact is that this is provided for in our legislation.

In the 2016 Taxation Laws Amendment Act, 15 of 2016, several pieces of our tax legislation, including legislation applicable to VAT, income tax and estate duty, were amended to provide for this. In the case of the VAT Act, the following amendment was inserted:

“If the Minister makes an announcement in the national annual budget contemplated in section 27(1) of the Public Finance Management, 1999 (Act No. 1 of 1999), that the VAT rate specified in this section is to be altered, that alteration will be effective from a date determined by the Minister in that announcement, and continues to apply for a period of 12 months from that date subject to Parliament passing legislation giving effect to that announcement within that period of 12 months.” (our emphasis)

In other words, the rate change can apply from the date announced by the Minister of Finance, provided the legislation giving effect to the announcement is passed within 12 months. Although we are not aware of any instance where these amendments were challenged, in 2017, the High Court in Pienaar Brothers (Pty) Ltd v Commissioner for the South African Revenue Service and Another (87760/2014) [2017] ZAGPPHC 231, held that tax legislation could apply retrospectively.

Why the issue this time?

When the last VAT rate change occurred, the 12-month requirement was met in that the 2018 Rates Act was passed in January 2019, less than 12 months after the announcement to increase the VAT rate in February 2018.

The difference between then and now is that whereas one political party then held the majority in Parliament and the executive, South Africa is now governed by the GNU. In 2018, the Minister of Finance could announce the VAT rate change, knowing that the legislation would almost certainly be passed within the 12-month period, as his party held the majority. In 2025, this is not a foregone conclusion.

The risk is thus that a proposed VAT rate change, or any other rate change for that matter, may not be passed within the 12-month period. This could understandably have catastrophic consequences, especially from a tax administration perspective and cause significant prejudice. It would potentially create a situation where taxpayers were taxed at one rate from the date of the rate change announcement, but if the rate change was not passed by the end of the 12-month period, they would have likely overpaid in taxes.

What’s next?

It remains to be seen whether the mooted VAT rate change will see the light of day come 12 March 2025 when the 2025 Budget is tabled. While one hopes that the tax burden faced by South Africans does not increase, it will no doubt be interesting to see what transpires.