How the planned VAT increases will affect your wallet

Disclaimer: At the time of writing, the proposed VAT increase remains under discussion and has not been finalised. This media release is based on currently available information, which may be subject to change as the situation evolves.

15 April 2025

South Africans will soon be paying more for everyday goods and services if a proposed increase in value-added tax (VAT) goes ahead. Many have already received notices from insurance companies and other suppliers advising them that the increase is imminent.

The increase was confirmed by the Minister of Finance, following the budget speech on 12 March. VAT is tabled to rise to 15.5% from 1 May 2025, and a  further increase in the VAT rate, to 16%, is planned to take effect on 1 April 2026. The Democratic Alliance has issued a court challenge, however, and political parties discussed VAT over the weekend of 12 and 13 April. JustMoney.co.za, a platform that helps South Africans make good money choices, examines the impact of the proposed increase.

What is VAT?

VAT is a tax applied to goods and services. Most goods and services are currently taxed at 15%, but some essentials, including basic foods and exports, are zero-rated, meaning taxable at 0%. Some services, such as education and rent, are classified as exempt.

Impact of VAT hike

The planned increase will likely hit low-income households the hardest, as they spend a larger share of their income on essential goods and services. Rising prices leave these households with less disposable income, leaving many to rely on credit to cover daily expenses.

The VAT increase may be less of a burden for higher income groups, says JustMoney operations manager Sarah Nicholson. “Nonetheless, even a modest VAT hike can eat into your finances. A half-percentage point increase makes a big difference when applied across your annual expenses.”

If a typical household spends a base amount of R10,000 a month on VAT-applicable items, the monthly bill will cost R11,550 instead of R11,500 from 1 May.

This increase of R50 a month, or R600 a year, when coupled with inflation, reduces the real value of a salary increase. Less money is available for essential expenses and savings.

The additional tax revenue of  R15 billion to R20 billion that the government aims to collect, which might have been spent on investment and growth, now needs to be paid as tax.

JustMoney unpacks how a VAT hike could hit your wallet across different spending categories.

1. Grocery costs. The cost of basic food items such as brown bread, maize meal, rice, eggs, and fresh fruit and vegetables will not increase. Most supermarket purchases, however, such as processed foods, household cleaning products, toiletries, and pet food, carry VAT and will cost more.
2. Bank fees. True bank charges are not subject to VAT. Transactions such as ATM withdrawals, stop payments, account inquiries, and international transactions, are considered bank services and are subject to VAT.
3. Home rental. Residential rent is not subject to VAT, but many private services linked to your accommodation, such as security, garden maintenance, and internet, are VAT-applicable. Your landlord may pass these service costs on to you in the form of increased monthly levies, or they could be a factor when the lease is due for renewal. Check the terms of your rental agreement.
4. Municipal bills. Water and electricity charges from your local municipality are subject to VAT. For example, if your total municipal account is R2,000 per month, this includes R261 in VAT at the current rate. From 1 May, with a VAT rate of 15.5%, you would pay R2,009.
5. Property sales. If the seller is registered for VAT, the purchase price will include VAT. For a property valued at R1,000,000, an additional VAT amount of R4,348 will be payable.
6. Bond payments. If you are paying off a home loan, the bond repayment itself is not affected by VAT. Some associated costs, however, such as bank administration fees, and bond protection insurance, would be adjusted for the VAT increase.
7. Car ownership. You do not pay VAT on petrol or diesel, which is taxed by other means. Many car-related costs, however, are vatable. These include services, repairs, parts, tyres, and the administrative part of your car insurance. If a major car service now costs R5,000 including VAT, it will cost R22 more at the new VAT rate.
8. Ongoing project services. If you are in the middle of a home alteration, or similar project, the VAT levied will depend on when the work is done. Any work completed by the end of April 2025 will be subject to 15% VAT. Any work completed from 1 May onwards will be subject to 15.5% VAT.
   Should the VAT rate increase again on 1 April 2026, 16% VAT will be levied on work completed thereafter.
9. Consulting invoices. If you provide monthly consulting services to a client for a fixed fee, you may be uncertain which tax rate to apply.
   If you invoice after the end of the month – for example, on 1 May 2025 for services provided in April – those services are still taxed at 15%, because they were delivered before the VAT increase. Services provided on or after 1 May 2025 will be taxed at the new VAT rate of 15.5%.

Plan for the proposed VAT increase

“Whether or not the VAT increase goes ahead, the reality is that government still needs to raise revenue. That means consumers are likely to face financial pressure in one form or another,” says Nicholson. “It’s wise to begin preparing for changes and looking for ways to save, and if possible, boost your income.”

JustMoney offers the following tips.

• Focus on essentials. Choose zero-rated items, like basic foods.
• Cut back on luxuries. Compare prices to make sure you’re getting the best value. Consider buying in bulk when items are on special, and avoid waste by planning your meals and shopping with a list.
• Grow your income stream. Identify your skills and interests that could generate extra cash, such as freelance work, tutoring, or selling handmade or pre-loved items online. Diversifying your income sources not only grows your earnings, but also builds financial resilience.
• Upskill. Sign up for short courses or certifications that can open the door to higher-paying jobs or promotions.
• Explore passive income options. Investing in dividend-paying shares, renting out a spare room, or starting a blog or YouTube channel, can build long-term earning potential.
• Talk to an expert. If you are considering major lifestyle changes, such as buying or selling property, or you have your own business, JustMoney advises speaking to a tax consultant or financial adviser to ensure you understand the impact of the VAT increases.

JustMoney.co.za is a trusted voice within the personal finance sector. The JustMoney platform offers personalised insights, numerous articles, and a range of financial solutions and tools, including a free credit score. Register here.

Find out more: