Over the last few months, the debate regarding a Value-Added Tax (VAT) increase intensified. The increase was on the cusp of being implemented, and would have been effective from May 2025, however, in April the decision was made to scrap the proposed increase.
The South African government's decision to reverse the proposed VAT hike has significant implications for consumers, particularly concerning credit and loans. While the VAT rate remains at 15%, understanding how such tax changes can affect credit is essential.
Understanding the VAT Reversal
Initially, the government planned to raise the VAT rate by 0.5 percentage points on 1 May 2025, with another 0.5 percentage point increase in 2026, aiming to boost state revenue. However, this proposal faced substantial opposition, leading to its reversal. Finance Minister Enoch Godongwana announced the withdrawal of the proposed VAT increase, maintaining the rate at 15%.
Impact on Existing Credit Agreements
For consumers with existing credit agreements, the VAT reversal means that the cost of these agreements remains unchanged. Since VAT is applied at the point of sale, any purchases made before 1 May 2025 are subject to the 15% rate, and repayments on these purchases will not be affected by the proposed increase.
Effect on New Credit Purchases
Had the VAT increase been implemented, new purchases made on credit after 1 May 2025 would have been subject to the higher VAT rate, potentially increasing the overall cost of these purchases. This would have led to higher monthly repayments for consumers using credit facilities. With the reversal, the VAT rate remains at 15%, ensuring that the cost of new credit purchases does not increase due to VAT changes.
Interest Rates and Loan Repayments
It's important to note that VAT does not apply to interest payments on loans. Therefore, the VAT reversal does not directly impact the interest rates or repayments on existing loans. So in essence, the VAT increase would not have had a direct impact on many credit facilities. However, had the VAT increase been implemented, it could have contributed to overall inflation, potentially influencing the South African Reserve Bank's decisions on interest rates – and this is where the consumer may have felt the impact when it comes to their credit.
Higher interest rates would have increased the cost of borrowing, affecting loan repayments. This means that new personal loans or credit facilities could have had a higher monthly instalment, and existing credit accounts that are linked to the interest rate would also have seen an increase in cost.
The RCS Store Card
With VAT not facing an upward trajectory, you can continue to enjoy the benefits of having an RCS Store Card without facing higher point of sale (POS costs). The RCS Store Card is accepted at over 30 000 stores across South Africa, as well as the opportunity to shop at many retailers online.
The card offers up to 55 days of interest-free shopping, while your purchase can be paid off over 24-36 months, ensuring that you can get what you need without breaking the bank. Applying for the RCS Store Card is also quick and easy. Simply head to the RCS website, click the “Apply Now” button and fill out the application to see if you qualify.
