The Cape Town High Court has ruled that a key provision in the Taxation Act granting the finance minister sweeping powers to alter the VAT rate is unconstitutional. A full bench led by Judge Matthew Francis declared on Thursday that Article 7(4) of the Act, which permitted the minister to unilaterally adjust the VAT rate, violates the Constitution. Parliament has been given a 24-month window to amend the legislation accordingly.
The ruling stems from legal action initiated by the DA last year after finance minister Enoch Godongwana proposed a 2% VAT hike during his national budget address. The DA contended that Godongwana had overstepped his executive authority by seeking to raise the rate without parliamentary approval, arguing that the Constitution expressly reserves decisions on tax increases for parliament alone. "The Constitution stipulates that only parliament can decide on it and that this decision cannot be delegated to the executive authority. This submission [of the DA] was based on a long line of authority delivered by the Constitutional Court," Francis stated in his judgment.
Both the minister and the South African Revenue Service opposed the application, maintaining that a clear separation of powers exists and that the contested provision serves the purpose of sound fiscal management rather than simply enabling tax hikes. They argued this separation entitled the minister to announce rate adjustments during the budget speech.
However, the bench did not grant the DA's application in full. Rather than stripping the minister of all powers in this regard, the judges opted to impose limitations. The court found that the current provision affords the minister excessive discretion, allowing a VAT rate announced during the budget speech to take immediate effect without parliamentary endorsement for up to 12 months.
In suspending the declaration of unconstitutionality for two years, the judges outlined specific safeguards for the revised legislation. These include defining the extent to which the minister may adjust VAT, prohibiting unlimited changes, and establishing statutory guidelines specifying the precise circumstances — such as a national economic crisis — under which ministerial discretion may be exercised. The court emphasised that the final decision must rest with elected representatives in parliament, not a single cabinet member.
Once ratified, the ruling will prevent the minister from taking similar action without enhanced oversight. Godongwana had already withdrawn his proposed increase shortly after announcing it ahead of the first budget speech on 26 February last year. The final budget was tabled before parliament on 21 May and subsequently approved without the proposed VAT hikes. The matter has been referred to the Constitutional Court for final confirmation, and a costs order was issued against the minister and SARS.
