South African consumers face a looming hit at the checkout as Finance Minister Enoch Godongwana’s 2025 Budget, tabled this week, introduces a 0.5% increase in Value-Added Tax (VAT).
The move, dialled back from an initial 2% proposal, still threatens to drive up food prices and deepen the cost-of-living crisis, piling pressure on households already stretched thin.
The Pietermaritzburg Economic Justice and Dignity Group (PMBEJD), a respected voice in tracking food affordability, warns that this VAT hike will ripple through the economy, hurting both people and businesses at a time when malnutrition and financial strain are already rampant.
“Budget 2025 hurts people & the economy,” the PMBEJD said in a sharp critique of Godongwana’s plan. Their latest analysis, based on February price data, lays bare the impact, “It calculated that a basket of food with a 0.5% VAT-rate hike will add R10.80 onto VAT, and bring the total 15.5% VAT on a basic basket of household groceries to R334.81, with the total basket increasing to R5 324.02 (from R5 313.22).”
The group also noted the potential relief from the Minister’s expanded list of VAT zero-rated items, noting, “Four such foods were included in its food basket – 2 kg chicken feet; 2kg gizzards; 2kg chicken livers; and six cans of canned baked beans. If VAT zero-rated these items could potentially result in a savings of R59.46 for the consumers, lowering the VAT on the basket to R275.35 and the overall cost of the basket to R5 264.56. This saving would depend on the producers and retailers passing this VAT zero-rated saving to consumers.”
Meanwhile, looking at the impact of a 0.5% VAT-rate on a basket of household toiletries and domestic products, the organisation said VAT “will add R4.50 and bring the total 15.5% VAT on a basic basket of household toiletries and domestic products to R139.53, with the total toiletries increasing to R1039.74 (from R1 035.24).”
Households will also have to shoulder a VAT hike in electricity costs. PMBEJD detailed that “a 0.5% VAT-rate on top of Eskom’s 12.7% increase due to come into effect in July (of R115.18) will add R5.11 onto VAT, and bring the total 15.5% VAT on a household’s basic 350kWh consumption of electricity to R158.42, with the total monthly cost of prepaid electricity for households increasing to R1 180.53 (from R1 175.42).”
The move, though scaled back from an initially proposed 2% hike, is set to exacerbate the financial strain on low-income households already grappling with rising costs, it said.
“The dogged pursuit of VAT to generate revenue was unfortunate, given that the Minister had far more effective revenue-raising options available to him, for example: removing the retirement fund tax breaks for high-paid employees earning above R750 000 per annum; or instituting a tax holiday on the Government Employees Pension Fund; amongst others, as suggested by various CSO’s prior to the budget speech. These options would have raised billions of rands, far beyond the revenue gained from increasing VAT. Raising VAT is not necessary when these options are still at hand,” the PMBEJD said in a statement.
The modest R30 increase to the Child Support Grant is far below the cost of basic nutrition, it said. “In February 2025, the average cost to feed a child a basic nutritious diet was R951.64. A R30 increase on the Child Support Grant, taking it from R530 to R560, may mean, using our February data, that the Child Support Grant of R560 will be 30% below the Food Poverty Line of R796, and 41% below the average cost to feed a child a basic nutritious diet (R951.64),” it states.
“Economic growth requires investment in human capital. For South Africa with such enormous problems of undernutrition, investing in our children is an essential political and economic priority. Our child stunting rates still take our breath away – 30% of boy children and 25% of girl children under the age of 5 years of age are stunted. Added to this, 12.7% or nearly 8 million of our people have HIV. The access to affordable nutritious food is at the core of our developmental trajectory – it cannot be ignored. Increasing the VAT-rate does not lessen this crisis – it reinforces it,” PMBEJD further said.
Yolandi Esterhuizen, a director of Global Product Compliance at Sage Africa & Middle East and Registered Tax Practitioner, said from a business perspective, the VAT increase will have implications for both consumers and businesses.
“While VAT remains one of the more efficient forms of taxation, its regressive nature means lower-income households will bear a proportionally higher burden. The government’s effort to mitigate this impact by expanding VAT zero-rated food items (including canned vegetables, dairy liquid blends, and certain organ meats) is a welcome measure,” she said.
Struggle to survive
Standard Bank said in a reaction to Budget 2025 revealed that a new study from the UCT Liberty Institute of Strategic Marketing reveals a grim reality – many households are already struggling to make ends meet and rely on others for food before their next payday. The study, called The Majority Report, shows that “many households earning less than R8 000 per month often rely on relationships with neighbours and relatives, borrowing from them to bridge the gap before their next pay.”
Approximately 17 million South Africans live in households earning less than R3 500 per month, relying heavily on social grants and another 19 million people live in households earning between R3 500 and R8 000, the study showed. The two income groups, often referred to as the “poor households” and “working poor” face severe financial strain, frequently making daily sacrifices like skipping meals. They struggle with financial instability, further exacerbated by the current cost of living crisis.
The study co-author, Paul Egan from the UCT Liberty Institute, said, “For these households, every spending decision is carefully planned and scrutinised. They plan their spending based on specials. The financial pressure is so intense that many households struggle to meet even the most basic nutritional needs.”
Standard Bank’s executive head of Middle Market, Motlatsi Mkalala, says most consumers in these households struggle to change their financial situation – many have not completed matric, and face unstable employment prospects. “Scouting for food specials is a necessity. Those who have credit at spaza shops or borrow for food sometimes struggle to manage repayments,” he said.
“During the study, one woman shared how she and her sister manage their finances by swapping salaries – one paid on the 15th, the other at month-end. This is a common solution for many, as people often rely on friends and family to close the gap. Sacrifice, especially maternal sacrifice where mothers skip meals for their children, is also significant,” explains Mkalala.
Delayed gratification is also a big reality, with many parents or older siblings delaying their plans to study, buy a house or travel, hoping that someday everything will improve when their children or younger siblings succeed. “For many the focus is on providing a better future for their children or younger siblings to improve the whole family’s future financial prospects,” he said.
“But it’s tough to estimate how long they’ll wait for things to get better. With high unemployment and limited job opportunities, many are focused on survival and basic needs, like having enough food,” said Mkalala.
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