All eyes will be on the much-anticipated National Budget Speech by the minister of finance, Enoch Godongwana, on Wednesday following the postponement three weeks ago. The budget was cancelled after the government of national unity (GNU) could not agree on a proposed 2% VAT increase.
While different messages are coming from GNU, farmers and South Africans are waiting with bated breath to hear if they will have to dig deeper into their pockets for tax. The move, aimed at addressing the country’s budgetary needs, is expected to impact producers and consumers, with particular strain on small-scale farmers and businesses already grappling with a range of challenges.
Farmers said a tax increase would set the industry backwards considering the country’s fragile economy.
Agriculuture cannot afford it
Peter Pentz, communications manager at Groote Post, Western Cape, expressed his concerns, highlighting the difficult position the sector is already in.
“A 2% VAT increase would add more pressure on wine producers, this while we are already navigating rising input costs, load shedding, and logistical challenges. The South African wine industry is a key contributor to the economy, supporting thousands of jobs. This would also impact profitability.
“While we understand the need for government revenue. We urge policymakers to consider the broader economic impact on agriculture and tourism, sectors that are vital to our country’s growth,” he said.
According to Pentz, the wine industry, like many others in agriculture, faces a delicate balancing act between maintaining profitability and managing rising operational costs. An increase in VAT could make this balance even harder to achieve, ultimately squeezing producers at a time when they can least afford it.
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Impact on new-era farmers
Mlungisi Bushula, a commercial farmer from the Eastern Cape, argued that the VAT increase represents a “shortcut” in addressing South Africa’s trade deficit.
“The proposed VAT increase will only shrink the disposable income of households, particularly the poor ones because the prices on the shelves will increase and the basic food, goods and services will become more expensive.
“The cost of business will be more expensive as we will have to pay more for the inputs and services associated with our production. This will negatively impact the cash flow, and the emerging and small-scale farmers will feel it the most as they are not generally registered for VAT and therefore cannot claim it back,” he explained.
Bushula said small-scale farmers often operate on tight margins, and the inability to offset VAT costs makes it especially difficult for them to remain competitive. “This could lead to reduced production capacity, fewer local goods available to consumers, and heightened risks to food security.
“If the proposed VAT increase is signed, most farmers will find it difficult to continue farming, and consumers will not be able to afford the fresh produce in quantities that will make it sustainable,” Bushula said.
Ashell Maenetja, a communal livestock farmer in Limpopo, voiced similar concerns, stressing the disproportionate impact on small enterprises.
Job losses loom
“Production input costs will definitely close our shops. I’m worried about it as a normal citizen. We can barely make ends meet, affording production inputs for the year is a challenge as it is. Imagine a 2% VAT increase; it’s going to be an impossible task to continue farming, especially on communal lands,” Maenetja said.
He suggested that farmers might have to shift to more cost-effective breeds such as Nguni cattle, but even this comes with challenges due to the lack of market opportunities for such breeds.
Thulani Magida, an Eastern Cape commercial farmer and entrepreneur, argued that instead of increasing VAT, the government should focus on stimulating economic growth.
“If businesses lose, we’re going to close, and jobs will be lost. Who will be affected the most are low-income earners, which will also affect demand for food and then affect businesses.
“If the interest rates are low, then people can borrow money, invest, and grow their businesses. But with VAT increases on top of everything else, it’s just killing small businesses, especially emerging farmers,” he said.
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