The party of South Africa’s President Cyril Ramaphosa has reversed a controversial proposed value-added-tax (VAT) rise that had threatened the country’s coalition government.
The hike was proposed by the African National Congress (ANC) but was strongly opposed by the Democratic Alliance (DA), its main coalition partner in the unity government, which had even asked the courts to block it. Other opposition parties also opposed it.
The reversal of the proposed 0.5% tax hike comes just days before it was due to take effect.
The finance ministry said the decision came after consultations with political parties and parliament, but warned that it would cause a significant deficit in revenue.
It said other tax increases or public spending cuts could follow as a result of the 75bn rand ($4bn; £3bn) shortfall.
The reversal of the tax rise is likely to be welcome news for many South Africans, most of whom are already burdened by a stagnant economy and the rising cost of living.
Finance Minister Enoch Godongwana had been advocating the increase, arguing it would help cushion the most vulnerable from the effects of other tax measures.
But it faced resistance from various political parties – including senior figures within his own ANC party – who viewed it as short-sighted.
On Thursday the finance minister said “the decision not to increase VAT means that the measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited”.
The minister is now expected to introduce a revised version a spending bill within the next few weeks.
In February, Godongwana had to postpone his budget presentation after fierce resistance to the proposal to increase VAT.
The DA argued the move would worsen the cost-of-living crisis and increase economic inequality.
The row comes at a challenging time for the government.
Around a quarter of South Africans are unemployed and reliant on government support, and the treasury has warned of mounting pressure on public finances.
Additional reporting by Basillioh Rukanga in Nairobi
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