Executive Tax Powers Under Fire: The Court Ruling That Could Rewrite South Africa’s Tax Playbook
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Response to the court case by the DA on increase in VAT rate:
Democratic Alliance v Minister of Finance and Others (2025/045530) [2026] ZAWCHC 102 (5 March 2026)
The Case Everyone Is Talking About—But Few Fully Understand
The purpose of this article is not to restate the details of the court case, but rather to highlight certain historical aspects of section 7(4) of the VAT Act, 1991.
Since the High Court litigation centres on section 7(4) of the VAT Act, it is not necessary to reproduce the relevant wording of the provision.
“If the Minister makes an announcement in the national annual budget contemplated in section 27 (1) of the Public Finance Management, 1999 (Act No. 1 of 1999), that the VAT rate specified in this section is to be altered, that alteration will be effective from a date determined by the Minister in that announcement, and continues to apply for a period of 12 months from that date subject to Parliament passing legislation giving effect to that announcement within that period of 12 months.”
This case concerned the constitutional validity of section 7(4) of the Value-Added Tax Act 89 of 1991, a provision that permits the Minister of Finance to alter the VAT rate through an announcement made during the national budget. The litigation arose after the Minister announced in the March 2025 budget that the VAT rate would increase from 15% to 15.5% from 1 May 2025 and to 16% from 1 April 2026. The applicant, the Democratic Alliance, challenged the legality of the mechanism in section 7(4), arguing that it unlawfully delegated Parliament’s taxing power to the executive.
The Court’s Message: Tax Power Belongs to Parliament, Not the Executive
The court concluded that section 7(4) therefore constitutes an impermissible delegation of legislative power. Although the provision aims to facilitate fiscal flexibility, it lacks sufficient statutory limits and mechanisms of immediate parliamentary control to preserve the constitutional balance between executive action and parliamentary authority over taxation.
The court concluded that section 7(4) unconstitutional and invalid but suspended the declaration of invalidity for 24 months to allow Parliament to correct the defect. The challenge to the Minister’s 2025 budget announcement was dismissed as moot because the proposed VAT increase had already been withdrawn.
Our observation
The High Court judgment is clear and unequivocal in that it deals specifically with section 7(4) of the VAT Act. The effect of the ruling is that members of the executive should not be permitted to unilaterally or arbitrarily increase the VAT rate.
However, this raises a broader concern. Similar provisions—both in wording and effect—appear in other tax statutes, including the Income Tax Act, 1962 and various other tax-related legislation. These provisions likewise empower the executive to determine or adjust key tax elements.
For easy reference, we refer to section 5(2) of the Income Tax Act that refers to the income tax brackets for individual tax rate. Section 5 (2)(a) and (b) reads as follows:
“5(2)(a) The Minister may announce in the national annual budget contemplated in section 27 (1) of the Public Finance Management Act 1999, (Act No. 1 of 1999), that, with effect from a date or dates mentioned in that announcement, the rates of tax chargeable in respect of taxable income will be altered to the extent mentioned in the announcement.
(b) If the Minister makes an announcement of an alteration contemplated in paragraph (a), that alteration comes into effect on the date or dates determined by the Minister in that announcement and continues to apply for a period of 12 months from that date or those dates subject to Parliament passing legislation giving effect to that announcement within that period of 12 months.”
As can be observed, the wording mirrors that of section 7(4) of the VAT Act. The fact that the court did not consider section 5(2) of the Income Tax Act suggests that the income tax rates for individuals, as announced on Budget Day 2026, remain in force.
Accordingly, Parliament is still required to pass the necessary legislation within a 12-month period. The Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill of 25 February 2026 has already been tabled in Parliament and is likely to be enacted in due course.
If still in doubt a list of comparable provisions is supplied below:
Section 6(6) Normal tax rebates
Section 6A(5) Medical schemes fees tax credit
6B (5) Additional medical expenses tax credit
Section 50B (1b) levy withholding tax on interest
Para 45(1A) of the Eighth Schedule applies to the primary residence exclusion limit of R2 million (scheduled to R3 million with effect 1 March 2026)
Section 64(2) rate of donation tax which was first introduced in 1955.
Dividend tax 64E(1)(a)(ii) and section 64(1)(b).
So, a quick summary is that eight sections and one paragraph of the Income Tax Act mirrors section 7(4) of the VAT Act This list may not be exhausted.
The story does not end here.
The same provision can be found in the Transfer Duty Act section 2(3), Transfer Duty Act section 2(2), Estate Duty Act Frist Schedule section 1 (b), Security Transfer Act section 2(2).
Implications
So, Cabinet may unilaterally impose the following:
Rates for individual
Rebates for individuals
Medical schemes rebates
Levy of withholding tax on interest
Primary residence exclusion
Donation tax rate
Dividend tax rate
Rates for transfer duty
Estate Duty rate, and
Security Transfer rate.
By the way, Cabinet also imposes the rates for sin taxes.
Illustrative example of Imposition of Dividends tax
On 22 February 2017 (Budget Day), taxpayers were surprised that the dividends tax rate was increased to 20%. This increase did not take effect from 1 March 2017—the commencement of the next tax year for individuals—but instead became effective immediately (that is 22 February 2017), that is, from the moment the Minister of Finance announced the new rate. This effectively meant that the higher rate applied within the 2017 year of assessment.
This immediate implementation raised concerns, with questions being asked as to whether such an approach was irregular and inconsistent with established practice. It was also suggested that this manner of implementation may even be unconstitutional.
Generally, taxpayers have a legitimate expectation that tax rate changes announced on Budget Day will only take effect from the beginning of the new tax year—1 March for individuals and the first day of the new financial year for companies—rather than immediately upon announcement.
The then Rates and Monetary Amount Amounts Act 14 of 2017 was explicit. The New dividend tax rate of 20% would commence on 22 February 2017 and applies in respect of any dividend paid on or after that date’.
Why, then, would SARS and National Treasury implement the new dividends tax rate in a manner that appears to be constitutionally questionable?
The most plausible explanation is that the immediate implementation of the legislation was intended to limit opportunities for businesses and shareholders to implement schemes aimed at reducing the dividends tax burden, albeit at the potential expense of the company’s liquidity.
It is evident that, had the new dividends tax rate been set to take effect at a later date, companies would likely have rushed to declare and pay dividends—together with the associated withholding tax—before the higher rate came into force.
Furthermore, the very same tax provision was never contested in Constitutional court in 2017.
At the time, it was widely believed that the Constitutional Court of South Africa would endorse the actions of the revenue authority and National Treasury, largely on the basis that it would recognise the risk of numerous avoidance schemes emerging if the legislative changes were not implemented with immediate effect.
It is the function of the revenue authority to determine taxable income, and it is equipped with wide-ranging investigative and enforcement powers to do so. The immediate implementation of a new tax rule may be viewed as one such mechanism. This approach finds some support in comparative jurisprudence, for example in Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 (Australia).
The English experiment
Now, a brief story to helps to illustrate the narrative thus far.
In the early 1900s, under a Labour government in the United Kingdom, the Chancellor of the Exchequer (the equivalent of the Minister of Finance) delivered the Budget Statement. However, Conservative members of Parliament refused to pay certain taxes on the basis that the Finance Bill had not yet received Royal Assent (the equivalent of presidential assent in South Africa). The English courts upheld their position, finding that the collection of those taxes was unlawful.
In response, the United Kingdom enacted the Provisional Collection of Taxes Act in 1913. This legislation allows proposed tax changes announced in the Budget to take immediate effect, pending formal legislative approval.
This demonstrates that South Africa is not alone—revenue authorities in various jurisdictions have adopted mechanisms to give tax changes near-immediate effect.
Concerns arising from the court case
Why was only section 7(4) of the VAT Act—targeted? Was it solely this section of the VAT Act that was considered unconstitutional? What about the mirror provisions contained in other tax statutes—do they withstand constitutional scrutiny?
These are questions that, ultimately, only the appellant can answer. One would assume that if a particular provision is found to be unconstitutional, similar provisions in other legislation may face the same challenge.
Public discourse on taxation in South Africa is always engaging and thought-provoking.
