In a significant turn of events, the African National Congress (ANC), the ruling party of South Africa led by President Cyril Ramaphosa, has withdrawn a contentious proposal for a value-added tax (VAT) increase that threatened the stability of the country’s coalition government. The initial plan to raise VAT by 0.5% faced fierce backlash from the Democratic Alliance (DA), the ANC's main coalition partner, as well as from numerous opposition parties, prompting legal action from the DA to halt the tax hike.

The decision to scrap the tax increase was announced just days before it was set to take effect, reflecting the ANC’s responsiveness to the growing dissent within the political landscape. While the finance ministry attributed the reversal to consultations with various political stakeholders, it cautioned that this decision could lead to a considerable revenue deficit, estimating a shortfall of 75 billion rand ($4 billion; £3 billion). As a result, the government may need to consider alternative tax increases or cuts in public spending in the near future.

This reversal is likely to be well-received by many South Africans, who are already grappling with a stagnant economy and soaring living costs. Finance Minister Enoch Godongwana has been an advocate for the tax hike, claiming it would help shield the most vulnerable citizens from the repercussions of other fiscal measures. However, he faced resistance not only from opposition parties but also from members within his own ANC.

In addressing the media, Godongwana acknowledged the implications of not moving forward with the VAT increase, stating, “the decision not to increase VAT means that the measures to cushion lower-income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited.” He indicated that a revised spending bill would be presented within weeks, as the government navigates its financial challenges.

This latest development follows a tumultuous period for the ANC, particularly in February when Godongwana had to delay his budget presentation due to intense opposition against the VAT increase proposal. The DA has welcomed the recent reversal, crediting their court challenge as instrumental in this outcome, while emphasizing that their campaign is far from over.

Hellen Zille, chairperson of the DA's federal council, articulated the party's stance during a media briefing, stating, “This is the clearest indication yet of what it means to give a party like the DA the balance of power in parliament—so we can stop what's fundamentally detrimental to the people of South Africa.” She reaffirmed the DA’s commitment to pursuing economic growth, job creation, and responsible public spending to prevent further tax increases.

As the ANC grapples with these challenges, the nation faces pressing issues, with approximately a quarter of South Africans unemployed and dependent on government support. The treasury has warned of increasing strains on public finances, making the government’s next steps crucial for the country’s economic future.