Vat fight ends in court defeat for Godongwana

The Western Cape High Court has dealt Finance Minister Enoch Godongwana a blow, effectively watering down his powers to change the Vat rate unilaterally.

In a judgment confirmed late on Thursday night, the court ruled that Section 7(4) of the Value-Added Tax Act is inconsistent with the Constitution, declaring it invalid “as it constitutes an impermissible delegation of legislative power to the executive”.

The provision previously allowed the Minister of Finance to change the Vat rate through the national budget announcement, before Parliament formally approved it.

The judgment follows a court battle brought by the Democratic Alliance (DA), challenging the minister’s hand. It stemmed from last year’s announcement to raise Vat in a bid to increase revenue and balance the country’s books.

The Government of National Unity (GNU) was thrown into disarray last year when it entered its first budget cycle, divided over what National Treasury said was a much-needed VAT increase to plug the budget deficit.

The first iteration of Budget 2025 in February of that year failed to take off when some parties in the GNU, including the DA and the Economic Freedom Fighters, protested in Parliament ahead of Godongwana’s budget speech.

At the time, the minister was set to table a two percentage-point increase to the Vat rate, from 15% to 17%. That was quickly put on ice. The following month in March, Godongwana revised the proposal down to a one percentage-point increase, split in half over two years. That, too, didn’t find favour with the political parties in Parliament. By the third attempt in the May 2025 budget, a Vat increase had been scrapped altogether.

But this didn’t stop Godongwana’s powers from facing scrutiny through litigation.

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In its papers, the DA argued that “the matter raises questions concerning the separation of powers, the constitutional allocation of taxing authority, and the permissible limits of legislative delegation. These questions arise against the backdrop of a well-established constitutional principle: that the power to tax is an incident of representative democracy and is reserved for elected legislative bodies”.

Part of this was that the DA said Section 7(4) of the Value-Added Tax Act delegates to the minister the power to impose, increase or reduce a national tax – a power that the Constitution reserves exclusively to Parliament and that may not be delegated to the executive.

Section 7(4) provides that if the minister announces in the national annual budget that the Vat rate is to be altered, the alteration becomes effective from a date determined in the announcement and continues to apply for 12 months, subject to Parliament passing legislation giving effect to that announcement within that period.

“The irreversibility of Vat – a feature emphasised repeatedly by the DA – means that even if Parliament withholds approval, the public cannot recover the tax paid during the 12-month period,” the DA argued in its founding affidavit.

The court’s declaration of invalidity is suspended for 24 months to allow Parliament to correct the defect. The order has now been referred to the Constitutional Court for confirmation.

Despite its previous differences, the GNU appeared to have an easier time with Budget 2026 tabled by Godongwana last month. The minister even walked back on threats to increase taxes by R20 billion, also keeping Vat at 15%.

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