PRETORIA, Sunday 13 September 2026 — National Treasury has ruled out removing VAT from electricity, saying the measure would weaken the tax base and disproportionately benefit higher-income households even as power tariffs continue to rise sharply and opposition parties push for relief.
Treasury told IOL that it is aware of the increase in electricity prices but has not conducted a specific assessment of the effect of VAT on lower- and middle-income households. Electricity remains subject to VAT at the standard 15% rate.
The position is politically significant because electricity affordability has become an increasingly prominent campaign and household-cost issue ahead of the 4 November local government elections, with municipalities responsible for distributing power to millions of residents and businesses.
Treasury says zero-rating would cost revenue
National Treasury’s core objection is fiscal.
It says maintaining a broad VAT base is important to the efficiency and sustainability of the tax system and that removing VAT from electricity would reduce state revenue.
The electricity, gas and water sector generated about R22.21 billion in net VAT during the 2024/25 financial year, according to SARS tax statistics cited by IOL.
Treasury has not calculated the specific cost of zero-rating residential electricity, nor has it modelled narrower alternatives such as exempting only the first 50kWh, 100kWh or 200kWh consumed each month.
At the current VAT rate, every R1,000 spent on taxable electricity includes R150 in VAT.
Electricity prices have risen sharply
The debate comes amid steep increases in electricity costs.
DebtBusters data cited by IOL show electricity prices rising by about 101% since 2021 and as much as 165% over the past decade.
Those increases have intensified pressure on households already dealing with high food, transport and debt-servicing costs.
Electricity affordability has also become a municipal governance issue because many councils add their own distribution charges or tariffs to electricity supplied to residents.
Municipal electricity revenue remains an important source of income for local government, which further complicates proposals aimed at reducing retail electricity prices.
MK Party backs VAT relief
The MK Party is among the political organisations calling for electricity to be zero-rated.
MK MP Crown Prince Adil Nchabaleng said the party had previously raised the proposal during debates over VAT policy and continues to believe electricity should be included in the zero-rated basket.
Nchabaleng argued that charging VAT on electricity places an additional burden on households and questioned whether it made sense to apply VAT even where electricity is supplied through government’s Free Basic Electricity programme.
The party’s proposal remains a political position and has not been adopted by government.
Treasury has rejected wider VAT relief before
The latest position is consistent with Treasury’s broader approach to VAT.
Finance Minister Enoch Godongwana said earlier this year that expanding the basket of zero-rated goods would weaken the tax base and that broad VAT relief often provides a larger absolute benefit to higher-income households because they consume more.
Treasury has previously argued that targeted transfers are generally a more effective method of supporting poorer households than removing VAT from goods consumed across all income groups.
That reasoning has repeatedly been applied to electricity.
A government review in 2007 and an independent panel considering the zero-rated basket in 2018 both concluded that wealthier households would receive a disproportionate share of the benefit because they generally use more electricity.
Free Basic Electricity remains government’s preferred mechanism
Instead of VAT relief, government relies largely on Free Basic Electricity to support qualifying indigent households.
The standard allocation is 50kWh per month.
The 2026/27 Budget allocates R21.6 billion for basic energy support, while an intergovernmental working group is considering whether the 50kWh allocation remains adequate.
Treasury has warned, however, that simply increasing the allocation may not solve the underlying problem.
Many eligible households are not receiving their full entitlement because of deficiencies in municipal indigent registers, targeting and implementation.
That turns electricity affordability into both a national tax-policy issue and a municipal service-delivery issue.
Energy policy experts have also raised zero-rating
The proposal is not confined to opposition politics.
Earlier this year, South African National Energy Development Institute energy secretariat head Sampson Mamphweli suggested that zero-rating electricity should be considered as one possible response to increasing power costs.
Mamphweli said removing VAT could reduce the immediate retail cost of electricity by 15%, although he acknowledged that SANEDI had not modelled the fiscal impact or formally canvassed Treasury.
The suggestion reflected growing concern within the broader energy sector about affordability even as electricity supply reliability improves.
It did not constitute government policy.
VAT remains politically sensitive after 2025 dispute
Any debate about changing VAT takes place against the backdrop of the Government of National Unity’s major fiscal dispute in 2025.
Government initially proposed increasing the VAT rate but later abandoned the plan after opposition within Parliament, legal challenges and disagreement between GNU parties.
The rate therefore remained at 15%.
That episode demonstrated the political sensitivity of consumption taxes and the difficulty Treasury faces when attempting either to raise revenue or narrow the tax base.
Zero-rating electricity would move policy in the opposite direction but could create its own substantial revenue gap.
Local election campaign likely to keep issue alive
Electricity prices are expected to remain a prominent issue during the municipal election campaign.
Councils are under pressure to maintain electricity networks, collect revenue and protect poorer residents while also dealing with consumers increasingly moving to rooftop solar and other alternatives.
Opposition parties can therefore use national VAT policy as part of wider arguments about the cost of municipal services.
Treasury’s current position closes off one of the most direct national interventions for now.
The unresolved question is whether government instead increases targeted electricity assistance or reforms the Free Basic Electricity system as household affordability becomes more politically significant ahead of 4 November.
