The effects of cancelling the VAT increase on risk management in South Africa

Faculty and Staff

24 Apr 2025

The last-minute reversal of South Africa’s controversial VAT increase – announced just days before implementation – has positive and negative implications across economic, social, and financial spheres. It introduces significant operational, compliance, and reputational risks for South African businesses that have already reconfigured systems, adjusted pricing, sent communications to clients, and processed debit orders based on the new rate.

From a risk management perspective, it will have the following key effects:

Operational Risk

Systems updates have already been made: To remain compliant with the government's decisions, companies have updated their ERP, billing, and accounting systems to reflect the new VAT increase. Reversing these updates will involve reprogramming, revalidating and retesting systems, a time-consuming task that will incur additional unplanned costs.

Debit orders and contracts have been adjusted: Pricing adjustments and changes to debit orders have been communicated with stakeholders, and the changes have been finalised. Having to reverse these changes exposes organisations to the risk of errors or incorrect refunds due to the increasing workload of their staff members.

Regulatory/ Compliance Risk

Incorrect VAT collection: Due to this last-minute reversal, businesses may mistakenly charge the incorrect VAT rate post-1 May, thus exposing them to non-compliance risk and potential penalties. In addition, there’s the risk of submitting inaccurate VAT submissions to SARS, requiring amended returns and leading to additional administrative costs.

From a regulatory viewpoint, changing course on a planned tax policy signals regulatory inconsistency and negatively impacts long-term planning by businesses and investors. Additionally, if alternative revenue streams do not back the VAT cancellation, it may raise concerns among investors and credit agencies, leading to lower investor confidence.

Financial Risk

Doubled Costs for Finance/Admin Teams: The proposed VAT increase and reversal will incur unforeseen administrative costs and resources not budgeted for. The impact will be particularly significant on small businesses.

Potential Lawsuits/Claims: Businesses are potentially exposed to lawsuits or claims if they bill stakeholders incorrectly.

Reputational/ Strategic Risk

Loss of public and business confidence: Businesses and investors may lose trust in the stability and predictability of South Africa’s fiscal policy. Changing course on a planned tax policy signals regulatory inconsistency and negatively impacts long-term planning by businesses and investors. Additionally, if alternative revenue streams do not back the VAT cancellation, it may raise concerns among investors and credit agencies, leading to lower investor confidence.

Consumer frustration: Consumers charged a higher VAT rate, which is then corrected, may experience mistrust and even accuse companies of profiteering.

Final Thoughts

Maintaining stable VAT rates in South Africa supports consumer spending and ensures businesses can maintain revenue streams in a fragile economy.

An abrupt policy U-turn not only incurs unnecessary financial and administrative costs but also undermines confidence in fiscal stability, erodes public trust and creates confusion that may lead to legal disputes, incorrect tax filings, and long-term scepticism towards government decision-making.

Economically, the move supports consumer spending, offering market stability and benefiting sectors reliant on household consumption. However, the decision to reverse the VAT increase raises fiscal risks and limits government revenue potential in a climate where public finances are already under pressure. This may lead to increased borrowing, reduced public service delivery, or even a negative response from credit rating agencies and investors.

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Onwaba Maqabangqa Lecturer: Risk & Insurance