Budget 2025: VAT Adjustments and Zero-Rated Expansions Take Center Stage

Opinion Piece

The Budget 2025 was released little more than 24 hours ago and it is obvious that for some, Budget 2025 will be seen as a generous offering, while for others, it may provoke disappointment. Read on to find out why!

Expanded list of zero-rated items

We are informed that the list of zero-rated food item has been expanded to include edible offal, of sheep, poultry, goats, swine and bovine animals; specific cuts such as heads, feet, bones and tongues; dairy liquid blend; and tinned or canned vegetables. This will take effect from 1 May 2025.

It is known that edible offal refers to the edible internal organs and parts of butchered animals, including specific cuts like heads, feet, bones, and tongues, of sheep, poultry, goats, swine, and bovine animals. While Offal, also known as variety meats or organ meats, encompasses the internal organs and parts of a butchered animal that are edible.

Meat-eaters are the primary beneficiaries, as South Africans are known for their high meat consumption, with many regularly incorporating poultry and red meat into their meals. Zero-rating these staple foods could significantly lower household expenses.

However, this move is likely to face strong opposition from vegetarians.

The increase in VAT rate

The National Government is expected to increase the VAT rate by 0.5 percentage points in both the 2025/26 and 2026/27 tax years, bringing it to 16% by 2026/27.

VAT is currently experiencing an unusual phase. Historically, some members of the GNU opposed income tax hikes but supported VAT increases, as it was easier to collect and provided certain income groups with some protection. Notably, while some GNU members are relatively new, they were previously affiliated with parties that held this stance.

However, Budget 2025 introduces increases in both VAT and income tax, with the impact depending on a taxpayer’s income level and location within a tax bracket for the tax year ending February 2025.

For those located in the upper end of income tax bracket in the 2025 tax-year, any rise in taxable income for the 2026 tax year could push them into the next higher tax bracket, increasing their overall tax burden. As a result, such taxpayers may face a dual impact—higher taxable income and an increased VAT liability.

The Next Steps

The Budget announcement on 12 March 2025 does not automatically make it law. Its proposals must first be reviewed by the Standing Committee on Finance before being approved by the National Assembly. While the National Council of Provinces serves as the second house of Parliament, it does not have the power to veto national legislation—its role is limited to review.

Given the ongoing discussions and debates behind the scenes, it will be interesting to see how events unfold in the coming days.