Godongwana Defends Ministerial Power To Adjust VAT Rate Before Constitutional Court

Finance Minister Enoch Godongwana has defended the statutory power to adjust South Africa’s value-added tax (VAT) rate, arguing before the Constitutional Court that it is necessary for effective fiscal management.

The Constitutional Court reserved judgment on Thursday in the Democratic Alliance’s (DA) challenge to the legislation governing who has the authority to set the VAT rate.

The case follows last year’s dispute over the government’s proposal to increase VAT to 16%, with the increases originally intended to be phased in over two years. Godongwana later withdrew the proposal following strong political and public opposition.

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The legal challenge centres on a provision in the VAT Act that gives the finance minister the power to adjust the VAT rate.

Earlier this year, the High Court declared the provision unconstitutional but suspended the effect of its order for 24 months to allow Parliament to amend the legislation.

The DA subsequently approached the Constitutional Court seeking confirmation of the provision’s invalidity and an end to the suspension. The party argues that the provision has been unconstitutional since March last year.

Government Argues VAT Power Is Needed For Fiscal Pressures

Representing Godongwana, Advocate Kameshni Pillay argued that the ministerial power to adjust VAT was not without limits.

Pillay told the court that removing the mechanism could leave the government without an effective means of responding to sudden revenue shortfalls or fiscal pressures.

“Without such a mechanism, the minister would be left without an effective tool to manage immediate revenue shortfalls or fiscal pressures.

“Money bills take many months, and that's the evidence before this court, even up to a year to pass.

“Meanwhile, the government may face revenue shortfalls, be unable to meet spending commitments, or be forced to borrow money under pressure. Section 74 avoids that risk.”

The argument places the VAT provision within the broader process of managing government finances, particularly where legislative changes to money bills can take considerable time.

Constitutional Court Reserves Judgment

The Constitutional Court has not yet delivered its judgment on the DA’s challenge.

At issue is whether the existing statutory arrangement lawfully gives the finance minister authority to alter the VAT rate, and what should happen to the High Court’s declaration that the provision is unconstitutional.

The High Court’s 24-month suspension remains significant to the dispute because it gives Parliament time to address the constitutional defect identified by that court.

The Constitutional Court’s eventual ruling will determine the outcome of the DA’s application to confirm the provision’s invalidity and lift the suspension.