Court strips Godongwana of power to change VAT
The Western Cape High Court has found a section of the Value-Added Tax Act, which empowers Finance Minister Enoch Godongwana to amend the VAT rate, unconstitutional, reports Business Day.
The court declared that section 7(4) of the Value-Added Tax Act 89 of 1991 ‘is inconsistent with the Constitution and invalid’.
The full Bench suspended the order for 24 months to afford Parliament an opportunity to correct the defect.
Godongwana was taken to court by the DA, challenging the VAT Act and arguing it gives the Finance Minister the power to change the VAT rate for an entire year without Parliament’s approval. The DA argued section 7(4) delegates to Godongwana the power to impose, increase or reduce a national tax – a power that the Constitution vests exclusively in Parliament and that cannot be delegated to the executive.
‘If the Minister makes an announcement in the national annual Budget ... that the VAT rate specified in this section is to be altered, that alteration will be effective from a date determined by the Minister in that announcement, and continues to apply for a period of 12 months from that date, subject to Parliament passing legislation giving effect to that announcement within that period of 12 months,” the DA argued.
Last March, Godongwana – while delivering the national Budget – announced that the VAT rate would increase from 15% to 15.5% with effect from May 2025, and a further increase to 16% with effect from 1 April 2026.
Godongwana halted the increase after pushback from political parties.
In April 2025, the High Court heard the urgent application by the DA and the EFF to set aside the resolutions by the National Assembly and the NCOP to accept the report of the Standing Committee on Finance and the Select Committee on Finance in respect of the 2025 Fiscal Framework.
Following the hearing of the applications of the DA and the EFF by the High Court, Godongwana said he would shortly introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill, 2025 (Rates Bill), which proposed retaining the VAT rate at 15% from 1 May 2025, instead of the proposed VAT increases as announced in his Budget.
Later that day, the Minister gave notice that the Rates Bill would be introduced in the National Assembly, providing for, among other things, the reversal of the VAT rate increase announced in terms of section 7(4) of the VAT Act.
Business Day writes that central to the litigation was whether Godongwana is an appropriate person to set the tax rate.
The full Bench found that section 7(4) empowers the Minister to alter the VAT rate, describing it as a significant power.
‘We therefore hold that section 7(4) constitutes an impermissible delegation of legislative power to the executive. It is inconsistent with the Constitution and invalid,’ the judgment reads.
Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.
