South Africa just raised its sales tax for the first time in 25 years amid political upheaval

  • South Africa will increase its VAT for the first time in 25 years as part of an attempt to reduce its budget deficit.
  • South Africa's annual budget, delivered by Finance Minister Malusi Gigaba on Wednesday, is the first under new President Cyril Ramaphosa.
South African President Cyril Ramaphosa and Finance Minister Malusi Gigaba during a pre-World Economic Forum briefing on January 18, 2018, in Johannesburg, South Africa.
Moeletsi Mabe | Sunday Times | Gallo Images | Getty Images
South African President Cyril Ramaphosa and Finance Minister Malusi Gigaba during a pre-World Economic Forum briefing on January 18, 2018, in Johannesburg, South Africa.

South Africa is to increase its value added tax (VAT) for the first time in 25 years in order to help bridge a gap in the government's budget.

The news came as part of Finance Minister Malusi Gigaba's first annual budget in the South African Parliament in Cape Town. The speech also marked the first budget under new South African President Cyril Ramaphosa.

South Africa's VAT, which has remained constant since 1993, will increase to 15 percent from 14 percent as of April 1 this year. This is part of the Treasury's attempt to shrink its budget deficit, which stands at 4.3 percent of gross domestic product (GDP) in the 2017/18 fiscal year.

Last week saw momentous political change in Africa's most developed economy as Ramaphosa took over as president following former President Jacob Zuma's resignation. Ramaphosa is viewed favourably by the business community, not least for his pledge to fight the corruption that plagued Zuma's administration — of which Zuma denies wrongdoing.

The U.S. dollar fell against the South African rand on news of the VAT hike, and was trading over 0.7 percent lower immediately after the news.

"This is a tough, but hopeful budget," Gigaba said, as reported by Reuters.

"We decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances," he added.

South Africa's Treasury intends for its consolidated deficit to fall to 3.5 percent of GDP by the fiscal year of 2020/21. It also revised its projection of GDP growth for 2017 to 1 percent, up from the previous 0.7 percent figure.