Strategic Shift: South African Business Leaders Propose VAT Adjustment for Social Funding

Leading business groups in South Africa are advocating for a targeted VAT increase as a more sustainable alternative to income tax hikes for funding social support.

By: AXL Media

Published: Feb 24, 2026, 8:58 AM EST

Source: Information for this report was sourced from BusinessTech

A Contrarian Approach to Social Welfare

In a significant departure from traditional fiscal stances, several major business chambers and economic think tanks have signaled their support for a VAT increase. The proposal comes as the South African government searches for a sustainable long-term funding mechanism for the Basic Income Grant. Business leaders suggest that because the personal income tax base is already highly concentrated and "over-burdened," further hikes in that sector could lead to increased capital flight and a reduction in domestic investment.

The proposal typically involves a 1 to 2 percent increase in the standard VAT rate, currently at 15 percent. Proponents argue that a consumption-based tax is harder to evade and provides a more predictable revenue stream for the National Treasury. To mitigate the impact on the most vulnerable households, the business groups are also advocating for an expansion of the list of "zero-rated" essential items, ensuring that the cost of basic nutrition and services remains stable.

The Fiscal Reality of the Basic Income Grant

The debate over the Basic Income Grant has dominated South African fiscal policy discussions throughout 2025 and into 2026. With the grant expected to cost the state billions of rands annually, the National Treasury is under immense pressure to find "permanent" revenue sources that do not widen the budget deficit.

Economists supporting the VAT increase note that South Africa’s VAT rate is relatively low compared to many of its emerging market peers and several European nations. They argue that the broad-based nature of VAT allows for significant revenue collection with a smaller individual impact per transaction than a direct tax increase on a small pool of high-income earners.