Finance Minister Enoch Godongwana’s announcement of a VAT increase from 15% to 15.5% has sparked widespread concern, particularly among low-income households. Effective May 2025 (pending parliamentary approval), the hike will impact essential goods and services, including transport, food, and electricity. Here’s a breakdown of what this means for your monthly expenses.
Transport Costs: Indirect Ripple Effects
Andrew Bahlmann, CEO of Deal Leaders International, explains that while public transportation services like buses and trains are typically VAT-exempt, the increase could still have indirect effects. Transport providers may face higher operational costs due to increased VAT on fuel, maintenance, and other inputs, potentially leading to fare adjustments.
- Potential Fare Increases: If transport providers pass on these costs, fares could rise by 1% to 3%.
- 1% increase: R9 extra per month for someone spending R1,000 on transport.
- 2% increase: R18 extra per month.
- 3% increase: R27 extra per month.
While these increases may seem small, they can add up for low-income households already struggling with rising costs.
Electricity Bills: A Direct Hit
Electricity is subject to VAT, meaning the increase will directly impact your monthly bill. For a household consuming 350 kWh per month at an average rate of R2.00 per kWh:
- Monthly electricity cost: R700.
- Additional VAT cost: R3.50 per month (0.5% of R700).
- Annual impact: R42 extra per year.
While this may not seem significant, it adds to the financial strain on households already grappling with high living costs.
Food Prices: A Growing Burden
Food is another essential expense affected by the VAT increase. While individual price hikes may appear modest, the cumulative effect on low-income households can be substantial.
- Household food basket cost: According to the Pietermaritzburg Economic Justice & Dignity Group, the average cost rose from R5,277.30 in February 2024 to R5,313.22 in February 2025.
- Additional VAT cost: Approximately R26.57 per month, or R318.84 annually.
For families already struggling to put food on the table, this increase could force tough choices between essentials.
Is the VAT Increase a Solution or a Short-Term Fix?
Dr. Velenkosini Matsebula, a senior lecturer in development finance at Stellenbosch Business School, argues that the VAT hike reflects deeper economic challenges. While the government justifies the increase as necessary to fund critical social services, it highlights a cycle of stagnation, rising public debt, and reliance on a shrinking tax base.
- Economic Stagnation: South Africa’s GDP growth has averaged below 2% over the past decade, with only 0.6% growth in 2024 and a projected 1.8% medium-term growth rate.
- Tax Base Constraints: With nearly 28 million South Africans relying on social grants, further tax increases could weaken consumer spending and exacerbate economic challenges.
Matsebula warns that without significant economic reforms, VAT increases and other tax hikes will only burden existing taxpayers without addressing the root causes of fiscal strain.
The VAT increase to 15.5% will have a tangible impact on South African households, particularly those with limited incomes. While the additional costs for transport, food, and electricity may seem small individually, their cumulative effect can strain already tight budgets. As the government seeks to balance fiscal responsibility with social support, the debate over the VAT hike underscores the need for sustainable economic solutions that address both immediate needs and long-term growth.
Follow Joburg ETC on Facebook, Twitter , TikTok and Instagram
For more News in Johannesburg, visit joburgetc.com