South African business owner Ndumiso Madlala is concerned about the looming value-added tax (VAT) hike, which could pose a challenge for his small beverage company producing both alcoholic ginger beer and non-alcoholic drinks.
The National Treasury plans to increase VAT by 1 percentage point over the next two years, beginning on May 1, as part of efforts to boost government revenue. Currently, VAT stands at 15%.
For Madlala, the increase could either force him to raise prices or reduce his profit margins—neither of which are desirable options for a small business operating in a tough economic climate.
“For small businesses like ours, the biggest challenge is being competitive on price,” Madlala told Reuters. “Larger companies can adjust their prices quickly and lower them to increase volume. But for us, that’s not an option.”
The VAT hike comes at a time when South Africa’s economy faces significant challenges, including a slow recovery after years of unstable electricity supply, domestic political unrest, and global trade tensions.
Prolonged power outages have severely impacted South Africa’s economic growth for over a decade, driving businesses to rely on costly alternative energy sources such as diesel-powered generators.
Additionally, rising costs, including increases in electricity and water tariffs, are straining businesses and households alike.
While the National Treasury has promised to expand the list of zero-rated VAT items to help low-income households, some economists argue that these measures may not be sufficient. As everyday goods become more expensive, the middle class is also feeling the burden of higher costs.
“VAT hikes are never a good idea,” said economist Nomahlubi Jakuja. “The people who will be hardest hit by any increase are the middle class and the poor.”
She added, “South Africa already has high unemployment rates, and adding another tax on basic goods reduces the purchasing power of ordinary South Africans.”
The VAT hike, part of the 2025 national budget’s revenue measures, has also intensified tensions within the ruling coalition between the African National Congress (ANC) and the Democratic Alliance (DA), the junior partner. The pro-business DA opposed the budget and even took legal action in an attempt to block it.
Despite the uncertainty, Madlala remains hopeful, counting on the strength of his brand and the popularity of his unique ginger products to weather the storm.
“My confidence comes from the brand I’ve built, Dragonfire Ginger,” he said. “It’s one of a kind. Our loyal customers always come back for more.”