No More Value-Added Tax Increases by Decree

In Democratic Alliance v Minister of Finance and Others[1], the Western Cape High Court confronted a sensitive question regarding whether a member of the Executive could determine the rate at which Value-Added Tax (“VAT”) is levied (taking into account the need for fiscal agility). 

Background Facts

Section 7(4) of South Africa’s Value-Added Tax Act 89 of 1991 ("VAT Act'') provides for VAT rate changes to be announced by the Minister of Finance (“Minister”) during the annual Budget. The rate so changed applies from the date announced by the Minister (subject to Parliament passing legislation giving effect to that announcement within 12 months of the date from which the rate is to change). Per the scheme of the VAT Act, Parliament’s role is to decide whether or not to confirm the announced VAT rate change.

The broader legislative context is as follows:

• the Public Finance Management Act requires that the Minister table the annual budget for a financial year in the National Assembly before the start of that financial year (or, in exceptional circumstances, as soon as possible after the start of the financial year); and
• the Money Bills and Related Matters Act requires budget documentation to include a proposed fiscal framework (setting out estimates of revenue, expenditure, borrowing and debt service costs for the following three years). Parliament is required, within 16 days of the tabling of the budget, to adopt or amend the fiscal framework. Once the fiscal framework is adopted, subsequent revenue and appropriation bills have to be consistent with it. Through this process, Parliament is made aware of the proposed rate changes and could either amend the fiscal framework  or decline to pass legislation approving the announced VAT rate change.

On 12 March 2025, the Minister, in delivering the 2025/2026 annual budget, announced changes to the VAT rate in terms of section 7(4) of the VAT Act. The announcement made provision for two 50 basis point increases as follows:

• from 15% to 15,5% VAT (with effect from 1 May 2025), and
• from 15.5% to 16% (with effect from 1 April 2026).

There was significant political opposition to the announced VAT rate increases. 

On 21 April 2025 the Speaker of the National Assembly informed the Minister that the adoption of the fiscal framework report was subject to conditions (including that alternative revenue proposals be explored). 

On 24 April 2025 the Minister announced that a Rates and Monetary Amounts and Revenue Laws Bill would be introduced to reverse the VAT increase. Such bill provided that the 12 March 2025 announcement does not come into effect retrospective to 1 May 2025. 

On 27 April 2025 the High Court, by agreement, issued an order suspending the operation of the Minister’s 12 March 2025 announcement pending the finalisation of the matter.

On 21 May 2025 the Minister tabled a new budget in Parliament announcing that the VAT rate increases had been dropped

Legal considerations  

The matter involved the following legal considerations:

• the separation of powers doctrine;
• the constitution’s allocation of taxing authority;
• limits of legislative delegation; and
• effectiveness of Parliamentary checks.

DA’s submissions

The Democratic Alliance ("DA") sought an order declaring section 7(4) of the VAT Act unconstitutional and invalid.[2] Its pleaded case rested on the following submissions:

• the power to impose, increase or reduce a national tax is reserved exclusively to Parliament and may not be delegated to the Executive i.e. an absolute prohibition rendering a provision delegating such power unconstitutional;
• section 7(4) delegates plenary legislative power to the Minister to amend the 15% rate set out in section 7(1) of the VAT Act (which is impermissible irrespective of safeguards or the limited duration of the power).

In oral argument the DA also raised the following submissions:

• section 7(4) violates the constitutionally prescribed procedure for the enactment of money bills; and
• even if there is no absolute prohibition on the delegation of plenary powers, the section 7(4) delegation fails the context-specific and factor based test articulated by the Constitutional Court’s Nu Africa decision.

Minister and SARS’ submissions

On the merits, the Minister’s and SARS’ submissions were as follows:

• there is a distinction between a power to impose a tax and a power to change the rate of an existing tax and that the case law authorities relied upon by the DA concerned the former (hence section 7(4) was constitutionally permissible);
• the dominant purpose of section 7(4) was not revenue raising but sound fiscal management (rendering the power to be of a regulatory nature outside the delegation of taxing power);
• there is no absolute rule against delegation of plenary legislative power (Nu Africa held that the validity of a delegation depended on a context-specific inquiry into the nature, scope and constraints of the power rather than rigid characterisation);
• section 7(4) did not delegate plenary legislative power (merely a limited temporary power to adjust one component of an existing tax);
• the Canadian Supreme Court has held that conditional/temporary delegations do not violate core democratic controls on taxation when confined, and subject, to legislative confirmation or reversal;
• in the United Kingdom, the Court of Appeals affirmed that part of the domestic law flowed from Parliament and delegation by Parliament to the Executive of tax or tax rate setting power and same is permissible if done in the clearest terms (affirmed by the House of Lords);
• the United States jurisprudence is deferential where guiding standards are intelligible/discernible, and the delegation is not excessive;
• the foreign case law demonstrated that even in jurisdictions with strict non-delegation scrutiny, limited delegations of rate adjustment powers (that are temporary or regulatory in nature) are constitutionally tolerable when constrained by statutory limits and parliamentary/executive checks. This was consistent with South African jurisprudence that permitted context-specific delegations;
• invalidation of section 7(4) diverges from the comparative tolerance for pragmatic fiscal delegations in modern governance.

High Court

The High Court reached the following conclusions:

• while the cases cited by the DA addressed matters where taxes were imposed, the power to set the tax rate is not minor detail or incidental detail – the tax rate is a defining feature of the tax. Delegation of rate setting power is delegation of substantial taxing power;
• section 7(4)’s dominant purpose is revenue raising – not for sound fiscal management or regulatory purposes;
• the Constitutional Court’s stance has been one of absolute prohibition where the delegation is of the power to impose a tax. The High Court recognised, however, that the Constitutional Court had not analysed a factually analogous rate setting case;
• the change in the VAT rate constituted an imposition of tax because by changing the rate, the quantum of tax payable on every taxable supply is altered (when a decrease is announced the tax burden is reduced and the reverse applies in respect of an increase). The temporary nature of the change does not detract from its substantive effect for as long as it operates;
• the section 7(4) power conferred is functionally equivalent, for the period of its operation, to the power exercised by Parliament when it amends the tax rate;
• whilst there is some force to the view (minority view expressed by Rogers J) that the procedure in sections 73 to 77 of the Constitution applies to legislation enacted by Parliament rather than delegated powers exercised by the Executive, the constitutional question is whether the substance of the power conferred is compatible with the constitutional allocation of taxing power; 
• the Constitution’s money bill procedure flags the significance of taxing power and informs of the intensity of scrutiny required when Parliament confers authority upon the Executive to alter the quantum or incidence of a national tax;
• Nu Africa moved away from an absolutist prohibition on delegation of plenary legislative power. Nu Africa affirmed instead that the validity of a delegation depends on a context-specific inquiry into a range of factors. These factors include the following:
  • the nature and scope of the delegation power. In this regard the Court highlighted that the section 7(4) delegated power affects the tax burden borne by every consumer of goods in South Africa and impacts the central charging provision (rather than technical adjustments). No statutory guidance or statutory constraints on the exercise of the power exist (beyond the requirement that it be announced in the annual budget). The absence of statutory constraints, such as timely ratification or rate adjustment limits, appear to have weighed heavily with the court (apart from background legality and rationality principles ordinarily applicable to exercises of public power);
  • the duration of the delegation of power. Whilst the rate changing power is not permanent, the operative tax rate, for the time it is in force, is the rate set by the Executive - not by Parliament. Parliament’s role is to determine whether the adjusted rate continues, after a maximum period of 12 months, rather than to invalidate the tax rate increase while it operated. The tax is, in a practical sense, imposed by the Executive;
  • Parliamentary control. Whilst the rate increase is subject to Parliament giving effect to the rate increase by passing legislation within 12 months, and Parliament having input into the fiscal framework, same does not amount to an ability to invalidate a section 7(4) announcement. The Minister’s ability to withdraw or reverse an announcement (as happened in this case) is not a Parliamentary check – rather it is dependent on the grace of the Minister;
  • the need for agility. Whilst the Court recognised that Parliament may not be as agile, it was not persuaded that the section 7(4) mechanism was the only mechanism available or that its absence would render responsible budgeting impossible (Parliament could, for example, be afforded a shorter period to approve a rate change by passing a resolution to that effect and the facts demonstrated that Government could indeed respond to a revenue shortfall without an immediate VAT rate increase set by the Minister);
  • the ubiquity of similar tax provisions. Whilst the Minister’s rate setting powers are a long-standing feature of the South African tax system, this had to be assessed individually by way of a careful and context sensitive approach (taking into account the nature of each tax, the breadth of discretion, and safeguards provided);
  • the reversibility/irreversibility of the position upon exercise of the delegated power. The VAT rate increase applies even if Parliament does not thereafter pass legislation to extend its operation. The Court concluded that the Parliamentary check operates prospectively. Immediate enforcement coupled with irreversibility (given the nature of VAT as a transaction tax) distinguished this delegated power from others that may allow for post operative correction;
• despite section 7(4)’s lack of an open-ended legislative mandate, temporal limitation, and operation within an existing tax regime, it authorises the Executive to determine, by announcement and with immediate effect, the quantum of a broadly based national tax that applies, for the duration of its interim operation, across the economy (without statutory criteria to govern the magnitude of the change and without requiring legislative ratification within a short period of exercise of the delegated power. Parliament’s control over the imposition of the changed rate applies either by confirming the measure or permitting it to lapse but not at the point of imposition);
• section 7(4) constituted an impermissible delegation of legislative power to the Executive and was therefore unconstitutional and invalid;
• it is for Parliament to determine how section 7(4) is to be remedied to comply with constitutional requirements (the order of invalidity was suspended for a period of 24 months).

As is typical for orders of this nature, the order was referred to the Constitutional Court for confirmation and/or consideration.

The Constitutional Court’s final pronouncement on this matter is eagerly awaited (similar provisions exist in various tax statutes and are common in other democratic jurisdictions). 

[1] Case number 2025-045530

[2] Together with other declaratory relief