Vat Act section declared invalid as court finds it gives finance minister too much power

2026-03-05 - 18:13

The Western Cape High Court in Cape Town has declared Section 7(4) of the value-added tax (Vat) Act unconstitutional and invalid in a judgment handed down in favour of the Democratic Alliance (DA). The DA brought the application last year as part of a legal challenge to Section 7(4), which allows the finance minister to change the Vat rate – currently at 15% – through an announcement in the national budget. Under the provision, the new rate takes effect immediately and remains in force for up to 12 months while Parliament completes the full budget legislative process. ALSO READ: ‘Over-optimistic Godongwana must step aside’ The political party approached the court amid a dispute over a proposed Vat increase that was ultimately withdrawn. It had argued that Section 7(4) unlawfully granted excessive power to the finance minister and asked the court to declare it invalid. The DA also sought declaratory relief related to the minister’s 12 March 2025 budget announcement proposing a 1% Vat increase over two years to a rate of 16%. Finance minister Enoch Godongwana and outgoing South African Revenue Service (Sars) commissioner Edward Kieswetter opposed the application. DA argues tax decisions belong to Parliament During hearings in late January 2026, the DA argued that the Constitution gives Parliament the exclusive power to impose or change national taxes. The party said Section 7(4) effectively gives this power to the finance minister by allowing him to increase or decrease the VAT rate. According to the DA, this type of power cannot be delegated to the executive. Godongwana and Kieswetter disagreed. READ MORE: Here is how much Godongwana has raised tax on alcohol and cigarettes They argued that the provision only allows the minister to adjust the rate of an existing tax, not introduce a new one. The respondents further contended that the section is meant to help the government manage public finances more effectively. They also argued that the DA’s challenge to the minister’s announcement was no longer relevant because the proposed Vat increase was withdrawn on 21 May 2025 during Godongwana’s third budget speech. Western Cape High Court ruling In a judgment delivered on 5 March, Judge Matthew Francis – with two other judges concurring – found that changing the Vat rate amounts to imposing or reducing a national tax. Francis emphasised that the Constitution reserves the passage of national legislation, including money bills dealing with taxes and levies, for Parliament. The court held that when the minister announces a Vat increase or decrease, the decision changes the amount of tax payable on every taxable transaction under the Act. READ MORE: Budget 2026: Slight relief for overburdened individual taxpayers Therefore, the provision effectively gives Godongwana unlimited power to determine a tax that affects citizens’ lives. “Section 7(4) empowers the minister to alter the Vat rate. This is a significant power. It directly affects the tax burden borne by every consumer of goods and services in South Africa. “It is not a power to make minor, technical adjustments; it is a power to change the central charging provision of the Vat Act,” Francis said. “The minister’s discretion is, on the face of the provision, unfettered. There is no statutory cap on the extent of the increase or decrease. “There is no statutory guidance on the circumstances in which the power may be exercised beyond the requirement that the announcement be made in the national annual budget,” the judgment further reads. Paid Vat is irreversible The court also examined the mechanism that allows the changed Vat rate to remain in force for up to 12 months while Parliament considers the necessary legislation. Francis said that in the one year, the effective rate is determined by the minister rather than Parliament. “Parliament’s failure to act does not invalidate the tax already collected; it merely prevents the alteration from continuing beyond 12 months. “The tax imposed during that period is, in every practical sense, a tax imposed by the executive.” The judge further highlighted that Vat is effectively irreversible once paid, meaning taxpayers cannot reclaim the amount even if Parliament later refuses to approve the change. The court ultimately declared Section 7(4) invalid but suspended the declaration of invalidity for 24 months to give Parliament time to remedy the constitutional defect. The matter has also been referred to the Constitutional Court (ConCourt) for confirmation. However, the court dismissed the DA’s request for relief related to the minister’s 12 March 2025 budget announcement, agreeing with the respondents that the issue had become moot. NOW READ: MTBPS: So, we did not need a 2% Vat increase after all?