Take two of Budget 2025/26 required nerves of steel…
Facing sustained pressure to increase budgeted expenditure over and above the Medium-Term Budget ceiling by some parties and then even more pressure from the Government of National Unity (GNU) partners to reduce this, Minister Godongwana ultimately managed to find the middle ground and pacify all by adding additional expenditure of R142billion to the budget over the next 3 years. This to be funded by a 0.5% increase in the VAT rate to 15.5% effective 01 May 2026, followed by an additional 0.5% increase to 16%, effective 01 April 2026. Unfortunately, this came at the cost of zero inflationary adjustments to the personal income tax brackets or rebates.
Tax Highlights
To plug the revenue collections gap of R16.7 billion, Minister Godongwana raised a total of R28billion primarily through the sleight of hand by not adjusting medical tax credits (+R1.5billion) and individual tax brackets and rebates for inflation (so-called ‘bracket creep’ raising R18billion). And the ‘show stopper’ in the original budget – an increase in the VAT rate of 0.5% wef 01 May 2025 to 15.5% and a further 0.5% increase to 16% wef 01 April 2026 - is expected to raise R13.5billion and R14.3billion, respectively. Minister Godongwana relented somewhat by expanding the list of zero-rated basic foods to include edible (some may disagree?) offal of sheep, poultry, specific cuts such as heads, feet, bones and tongues of goats, swine and bovine animals; dairy substitutes (dairy liquid blend), and canned vegetables!
Minister Godongwana gave away a little more by not increasing fuel/road accident fund levies (-R4billion) but took it back by way of the carbon fuel levy (expected to increase to 14cents for petrol and 17cents for diesel). No further increases in income taxes were announced, however, he has hinted previously that the a ‘wealth tax’ on wealthy taxpayers is not off the cards. Ouch!
As part of a periodic review the monetary thresholds for transfer duty were increased by 10% to compensate for inflation.
True to Form…
And as expected, above inflation-linked adjustments are expected to raise R1billion from so-called ‘sin taxes’ (between 6.75% for alcoholic beverages, 4.75% for cigarettes/tobacco and 6.75% for pipe tobacco/cigars) as well as environmental levies (such as the plastic bag and incandescent light bulb levy). Other stealth tax increases that crept through included an increase in carbon tax of 24.2%. In a smart move, no increase was announced for the Health Promotion levy (Sugar Tax).
Companies: Reprieve or Not?
Whilst the corporate tax rate remained at 27%, in line with international trends and recommendations by the OECD, South Africa expects to collect more tax in 2026/27 by way of the Global Minimum Tax of 15% (the so-called ‘top up’ tax) which came into effect from 01 January 2024 payable by ultimate holding companies of multi-national enterprises operating in South Africa. This is expected to raise additional tax revenues of R8billion per annum from the 2026/27 fiscal year.
Tax Incentives
The sunset date for tax incentives for urban development zones has been extended by 5 years, which sees property owners in these zones securing their tax concessions (additional capital allowances) until 31 March 2030. The income bands for eligibility for the employment tax incentive were adjusted to align with changes to the minimum wage.
Tax to GDP Ratio
All in all, our tax to GDP ratio for the 2025/26 year is projected to be 24.6%, a slight increase from the projected tax to GDP ratio of 24% for the 2024/25 year.
If the volatility in the Rand is anything to go by, having strengthened marginally as the Minister presented his budget, markets appeared to welcome the budget. It remains to be seen how the rating agents and the international world respond.
SARS Capacity Building Ambitions
The Commissioner for SARS got the nod by way of an allocation R3.5 billion over 3 years. This to enable SARS to improve revenue raising capabilities, in addition to a direct allocation for capital and ICT projects. SARS appears to have secured a further R3.5billion budget allocation for its modernisation programme – essentially a shift to a near real time collection of Employees tax and VAT collections. SARS announced a deferral of its plans to modernize the PAYE/IT3 systems and re-prioritise its roadmap to modernise its VAT systems.
Overall, Perspective is everything…
Whilst South Africans may feel that they have partially dodged the 2% VAT bullet, individual taxpayers have been let down once again – left to carry the can with a real tax increase of R19.5 billion, with no inflationary adjustments to tax brackets or to the medical tax credits.
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