Eswatini VAT Refunds May Change Following South African Rate Hike

MBABANE – Eswatini may be forced to review its value-added tax (VAT) refund procedures at the border following South Africa’s proposed VAT increase. This was confirmed by Eswatini Revenue Service (ERS) Commissioner General Brightwell Nkambule.

South Africa has proposed raising its VAT rate by 2%, from 15% to 17%, effective April 1, 2025. This move follows delays in the South African Budget Speech due to disagreements within the Government of National Unity (GNU).

Current VAT Rates and Implications

At present, both Eswatini and South Africa maintain a VAT rate of 15%. The last adjustment in South Africa occurred in 2018 when the rate increased from 14% to 15%. Nkambule emphasized that the ERS does not have the authority to change Eswatini’s VAT rate, as this power lies with the Ministry of Finance and Parliament.

The Commissioner General explained that Eswatini’s VAT system is closely linked to South Africa’s through the Southern African Customs Union (SACU). Consumers entering Eswatini generally pay VAT at the South African rate and declare their goods accordingly.

Nkambule noted that if South Africa implements a VAT increase, Eswatini will need to reconsider its refund procedures at border gates to align with the new tax structure.

Consumer Impact and Double Taxation Concerns

VAT is a consumption-based tax, meaning consumers pay it at the point of purchase. Nkambule pointed out that the current system prevents double taxation, as consumers already pay VAT in South Africa, and Eswatini collects refunds through the Sekulula VAT Easy process administered by the South African Revenue Service (SARS).

He warned that if Eswatini were to introduce its own VAT increase, it could disrupt the balance, complicating refund claims and possibly leading to increased costs for businesses and consumers.

However, concerns have been raised about the impact on Eswatini’s economy. Bongani ‘Bhanayaza’ Mduli, Chairman of the Eswatini Consumers Association, argued that increasing VAT in Eswatini would worsen the financial burden on citizens. He stated that the current VAT rate is already high, making essential goods and services less affordable.

“Everything is already costly, and electricity prices recently increased significantly. Any additional tax burden will only hurt consumers further,” Mduli said. He urged Members of Parliament to consider the best interests of emaSwati before making any VAT-related decisions.

VAT Hike to Drive Inflation in Eswatini

Economist Thembinkosi Dube warned that South Africa’s VAT hike will likely transfer inflationary pressure to Eswatini, as the two countries share strong trade ties.

Dube explained that businesses will be forced to pass on the increased costs to consumers, resulting in higher prices for goods and services in Eswatini. He expressed concerns that this could slow economic growth, as people would have less disposable income.

“The fear is that whatever happens in South Africa tends to spill over into Eswatini. Higher costs of goods and services could drive inflation locally, which would affect overall economic stability,” he said.

Indirect Taxes and Economic Balance

Dube highlighted a key argument from economist Johann Goethe of the Moneyweb financial platform, who emphasized that indirect taxes, such as VAT, are preferable to direct taxes like income tax.

“In recent years, governments have increased indirect taxes as a way to broaden the tax base. While direct taxes burden individual salaries, VAT is spread across consumer spending, making it a more stable source of revenue,” Goethe explained.

What Lies Ahead?

With South Africa’s VAT hike looming, Eswatini must decide how to navigate the potential economic and administrative challenges. While maintaining the current VAT structure could shield consumers from additional tax burdens, adjustments to refund processes may be necessary to align with the changing tax landscape in the region.

Stakeholders, including government officials, economists, and consumer rights groups, are expected to deliberate on the best way forward to ensure minimal disruption to the economy while protecting consumers from excessive costs.