The announcement of plans to increase the VAT rate to 16% by 2026/27, combined with no inflationary adjustment to income tax brackets, could have a dual effect on cross-border trade.
Cross-border payments service provider Verto highlights that this could increase the cost of goods and services for export markets, making South African products less competitive in regional markets where price sensitivity is a major factor.
However, companies in border areas or within the SADC region may be more directly impacted by changes in local VAT rates, especially for products that are imported or exported to and from South Africa.
Verto’s country director for South Africa, Cornelius Coetzee, notes that the increase in social grants and the extension of VAT zero-rated food items can have mixed implications for cross-border traders.
“While these policies will boost domestic demand for basic goods, businesses that depend on importing goods or distributing cross-border goods may not benefit as much from social support initiatives. Furthermore, if demand from neighbouring countries remains subdued due to lower purchasing power, South African exporters may see less interest in their products in those markets,” he says.
Coetzee emphasises that, unless the government takes bolder steps to address the specific needs of cross-border traders and introduces financial reforms that reduce the cost of doing business internationally, the budget’s impact will fall short of stimulating sustainable growth in South Africa’s export-driven industries.
Despite some positive intentions in the budget, South Africa’s cross-border trade and financial systems remain under pressure. The lack of substantial reforms targeting high trade costs — whether through better customs efficiency, trade financing, or improved regional agreements — means that businesses will continue to face significant challenges.
Furthermore, the energy crisis, along with the increase in VAT and the failure to introduce meaningful financial reforms, risks undermining the competitiveness of South African businesses in regional markets.
Coetzee points out the Minister of Finance’s failure to address the potential impact of additional US tariffs and the VAT increase on products and services and the broader economy as a notable omission.
Given the crucial role that trade dynamics and global partnerships play in South Africa’s economic outlook, this gap raises important questions about the government’s preparedness to mitigate challenges that could have significant consequences for both local businesses and international trade relations.
“South Africa’s ability to compete internationally is highly dependent on the regulatory and financial environment. The global remittance flows and cross-border B2B trade depend heavily on the smooth and efficient transfer of funds, particularly in light of shifting international trade dynamics,” Coetzee says.
“The speech’s failure to reference how the government plans to deal with increased trade barriers, combined with the VAT hike, indicates a lack of comprehensive trade policy reform.
“In a world where trade policies are increasingly shaped by regional cooperation and bilateral agreements, South Africa must not only focus on improving domestic infrastructure but also enhance its financial sector and trade policies to adapt to changing global realities,” he says.
Businesses involved in cross-border remittances will likely face increased costs from both the VAT increase and the tariff-induced decline in demand for their goods or services. This double impact could drive up the cost of doing business, reducing the potential for growth in global business participation and remittance volumes.
“Additionally, the government needs to provide businesses with tax relief measures or subsidies to mitigate the financial impact of the VAT increase, particularly for those in industries that depend on imported goods or materials. Customs duty reforms could also be considered to ease the strain on import-dependent industries,” says Coetzee.