South African President Cyril Ramaphosa party reversed the rise of a controversial proposed VAT (VAT), which threatened the country’s coalition government.
The hike was proposed by the African National Assembly (ANC), but strongly opposed by the Alliance for Democracy (DA), a major alliance partner of the unified government, which even asked the court to block the court. Other opposition parties also objected.
The proposed reversal of the 0.5% tax increase was in the first few days before it took effect.
The Ministry of Finance said the decision was followed by consultations with political parties and parliament, but warned that it would create a large revenue deficit.
It said other tax increases or public spending cuts could result due to a shortage of R7.5 billion ($4 billion; £3 billion).
For many South Africans, the reversal of tax rise may be welcome news, most of whom have been burdened by the economic stagnation and the increase in cost of living.
Finance Minister Enoch Godwana has been advocating for the increase, believing that it will help alleviate the most vulnerable to other tax measures.
However, it faces resistance from various parties, including senior figures within his own ANC party – who think it is shortsighted.
“The decision to decide not to increase VAT means that measures to reduce income households resist the potential negative impact of rising interest rates and now need to be withdrawn and re-examined other spending decisions,” the Finance Minister said on Thursday.
Now, the minister is expected to introduce a revised A spending bill in the coming weeks.
In February, Godongwana had to postpone its budget introduction after a strong resistance to a proposal to increase VAT.
The DA believes that the move will exacerbate the cost of living crisis and increase economic inequality.
The bank is challenging for the government.
About a quarter of South Africans are unemployed and rely on government support, and the Treasury warns that pressure on public finances continues to increase.
Other reports from Basillioh Rukanga in Nairobi
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