Bowmans Budget Speech commentary

Overview

According to the Chinese zodiac, we have just entered the year of the ‘Fire Horse’, which is associated with rapid change, passion and ambition. This is reflected in the 2026 Budget: Government has withdrawn ZAR 20 billion in proposed tax increases and is providing full inflationary relief to taxpayers for the first time in three years.

Can taxpayers bet on National Treasury and the proposed Budget Reforms? Or is the South African Revenue Service going to be scrambling to close the stable doors long after the proverbial horse has bolted?

The 2026 Budget reflects restored credibility in South Africa's economic outlook: South Africa has exited the Financial Action Task Force (FATF) grey list, secured its first credit rating upgrade in 16 years, and borrowing costs have improved. Higher-than-expected net VAT, corporate income tax and dividends tax collections have improved expectations for the year.

Interest limitations

The deduction of interest is limited in terms of the following two sets of rules in the Income Tax Act:

In terms of legislative amendments promulgated in 2024, section 23N was going to be aligned to section 23M to, amongst other things, limit the deduction of interest to 30% of ‘adjusted taxable income’. This caused great concern and various objections were raised given the distinct nature of the rules and transactions to which sections 23M and 23N respectively apply. National Treasury has confirmed that the proposed amendment has been withdrawn. This is a welcome development for corporate restructuring transactions.

We are proud to have been associated with SAVCA in their submissions to repeal the 2024 amendments to section 23N.

Extending the rehabilitation fund regime to nuclear facilities

The mining environmental rehabilitation fund regime, introduced in 2006, provides tax-deductible contributions and tax-exempt growth in funds set aside for environmental rehabilitation. Like mining operations, nuclear facilities are subject to strict legislative requirements for environmental rehabilitation and decommissioning. It is proposed that the rehabilitation fund regime be extended to allow nuclear facilities to also be eligible for this favourable tax treatment.

Taxation of collective investment schemes

The process of amending the provisions relating to Collective Investment Schemes (CISs) continues. National Treasury will be publishing a response document with revised proposals for further consultation. The draft recommendation in the response document is that all investment returns generated by regular CISs and retail hedge funds will be taxed as capital. This is intended to encourage savings and provide industry with certainty about the tax treatment of these savings vehicles. Government will also propose that qualified investor hedge funds (which are not open to the general public, have minimal investment criteria and only cater for those that can invest a minimum of ZAR 1 million) be excluded from the CIS tax regime and will propose alternative tax regime options for these funds in the response document.

National online gambling tax

This follows on the publication of a draft national online gambling tax discussion paper towards the end of 2025 (which proposed a 20% tax on gross gambling revenue generated by online gambling). Following the comment phase, which ends this Friday, National Treasury will be holding a workshop with those who commented. A proposal, including any revisions from the consultation process, will be included in draft legislation to be published for comment later in the year.

Taxation of short-term insurers

While most of section 28 of the Income Tax Act was updated to reflect IFRS 17 when it came into effect in 2023, section 28(3B)(a) was inadvertently omitted from the amendments. It is proposed that this subsection be amended to align the tax treatment of insurance liabilities transferred between short-term insurers with the requirements of IFRS 17.

Incentives

Special Economic Zones

Qualifying companies located in approved special economic zones are taxed at a corporate income tax rate of 15% rather than 27%. To prevent profit shifting to connected firms in special economic zones, companies are currently disqualified if more than one-fifth of expenditure or gross income arises from transactions with connected firms outside the zone.

National Treasury recognises that the rules that disqualify companies from the SEZ regime (in section 12R(4)(c) of the Income Tax Act) are rigid and, as a result, work against businesses that already operate in the zones and against potential investors wanting to use the zones to strengthen their own supply chains. To address this, Government will assess whether companies are buying or selling products to connected parties outside of SEZs at market-related prices to ensure that profits are not shifted into the low economic zone. This is a welcome development that should provide greater flexibility for legitimate commercial arrangements.

Urban development zone tax incentive review

The review of the urban development zone tax incentive zone continues. As part of the review, Government will explore targeting the incentive to better support affordable housing developments in areas that are close to jobs, public transport, and essential services. To this end, Government will hold a workshop with stakeholders and hopefully publish proposals in the 2027 Budget.

Financial sector reforms: data infrastructure

The use of data and artificial intelligence has become critical for the future development of economies worldwide. National Treasury has recognised that data infrastructure should be considered as critical in the same way as electricity, ports and transport networks, and has indicated that it will be exploring options to help data centres and related infrastructure expand these investments in South Africa to solidify the country’s role as a regional hub for these technologies.

Cross-border transactions

For 2026/27, the international taxation agenda will continue to focus on implementation of the global minimum tax rules (introduced with effect from 1 January 2024). The rules, also known as Pillar Two, are expected to reduce profit shifting by multinational corporations by limiting opportunities to take advantage of low or zero tax rates in other jurisdictions. Using the most recent data on companies’ operations and taking into account the OECD’s updated rules agreed in January 2026 (which are to now be adopted), tax revenues of ZAR 2 billion are estimated as a result of this reform in 2026/27. This represents a significant reduction from the previous estimate of ZAR 8 billion.

In terms of technical amendments needed in the Income Tax Act, we note the following change is proposed:

Section 9D(6) of the Income Tax Act contains a rule that requires that the net income of a controlled foreign company (CFC) be determined in its functional currency (for example USD). However, when including the relevant amount in the income of a South African resident under the CFC rules, the amount must be translated to Rand by applying the average exchange rate for the CFC’s foreign tax year. Section 25D(5) in return provides that where a South African shareholder is a domestic treasury management company (DTMC), which would have, for example, a USD functional currency, any amount received in a currency other than its functional currency (such as from a Rand attribution under the CFC rules), must first be determined in the DTMC’s functional currency and thereafter translated back into Rands using the average exchange rate applicable to the DTMC’s year of assessment. An amendment will be made to address the inadvertent onerous translation requirements created by these two provisions by excluding a DTMC that is a shareholder of a CFC from the application of section 9D(6) of the Income Tax Act.

Financial sector update, including exchange control

We highlight below certain of the cross border Financial Sector updates.

• The Reserve Bank, working with SARS and the Financial Intelligence Centre, will enhance supervisory oversight to ensure anti-money laundering, countering the financing of terrorism and tax compliance.
• Amendments will be published to the Exchange Control Regulations to include crypto assets in the capital flows management framework. This would complement existing regulation by the Financial Sector Conduct Authority (FSCA) which declared crypto assets as ‘financial products’ under the Financial Advisory and Intermediary Services Act, 2002, and the designation of crypto assets service providers as financial institutions by the Financial Intelligence Centre.
• The HoldCo concept for corporations will be expanded to allow asset managers to manage their portfolios locally in foreign currency, in the same manner that corporations are already permitted to do. This is effectively aimed to allow South African asset managers to manage portfolios of foreign assets, and to trade foreign currency denominated financial instruments.

With regard to the capital flows management framework (ie exchange control), while the extent of relaxation promised by the Late Minister Mboweni has not yet materialised, we are pleased to see the following welcomed relaxations:

• The interest rate cap(s) on inward foreign loans will be removed, subject to the loans being market related and reported to the Reserve Bank.
• The single discretionary allowance (ie old travel allowance) will be increased from ZAR 1 million to
ZAR 2 million per calendar year for all purposes including travel, gifts, remittances, investments and donations. Similar transfers can be made through Authorised Dealers with limited authority. The limit will be reviewed regularly.
• The limit for miscellaneous imports, services or subscription payments made via credit or debit cards are increased from ZAR 50 000 to ZAR 100 000 per transaction to bring these limits in line with current digital payment trends.
• The limit for miscellaneous payments to non-residents, for example, for sponsorships, office and warehouse expenses, demurrage or refunds, is increased from ZAR 100 000 to ZAR 200 000 per transaction.
• The limit of South African bank notes that can be carried in cash when entering or exiting South Africa is increased from ZAR 25 000 to ZAR 100 000.
• Authorised Dealers will be allowed to renew authorities previously granted by the Reserve Bank for local settlement in foreign currency, provided there are no material changes in the circumstances under which the original approval was granted. This will help to bring historic approvals into alignment with more recent relaxations concerning the use of customer foreign currency accounts used to make domestic payments for capital imports.
• The time lag for residents entering into cross-border merchanting transactions will be aligned to four months, irrespective of the jurisdiction of the foreign payer. This is extending the current time limit of
30 days (for trade outside of Africa) and 60 days (for trade with countries on the African continent).

Personal tax and employees

For the first time in years, there seems to be some appreciation for the tax contribution made by personal taxpayers. National Treasury not only adjusted the personal income tax brackets and rebates but also increased various other thresholds including the medical scheme tax credits (albeit by only a couple of Rands per month) and various fringe benefit thresholds. Many of these thresholds have not been increased in more than a decade.

Tax rates and rebates

Personal income tax brackets and rebates will be adjusted in line with expected inflation of 3.4 % for 2026/27. Lower- and middle-income taxpayers will derive the most relief from these bracket adjustments. The tax thresholds will increase as follows:

This marks the first inflationary relief provided to taxpayers since 2023/24. While this is good news, the inflationary adjustment does not compensate for the fact that the brackets were not increased for two years.

Medical scheme tax credits

While these credits have not been increased in recent years, taxpayers were mainly relieved that they have not yet been scrapped in preparation for the introduction of the National Health Insurance scheme. We thus welcome the inflationary (3.4%) increase of medical tax credits of ZAR 364 to ZAR 376 per month for the first two members, and from ZAR 246 to ZAR 254 per month for additional members.

It is proposed that eligibility for the medical scheme fees tax credit be extended to members of certain statutory medical schemes that face regulatory constraints removing them from the authority of the Council for Medical Schemes. Eligibility will be subject to the schemes offering benefits and adhering to governance and solvency requirements at least equivalent to those prescribed under the Medical Schemes Act.

 
Individuals, saving and retirement

Individuals

• Various changes are made in respect of capital gains tax thresholds for individuals, including:
- Increasing the exclusion at death (last adjusted in 2012) from ZAR 300 000 to ZAR 440 000.
- Increasing the primary residence exclusion from ZAR 2 million to ZAR 3 million.
- Increasing the annual exclusion from ZAR 40 000 to ZAR 50 000.

• Donations tax thresholds will also be increased:
- Exemption for donations made by entities (last increased in 2002) is increased from ZAR 10 000 to ZAR 20 000.
- Exemption for donations made by individuals (last increased in 2007) is increased from
ZAR 100 000 to ZAR 150 000.

• Reference is made to what appears to be a tax avoidance arrangement involving high-net-worth individuals planning to cease South African tax residence. The arrangement involves staggering the cessation of tax residence between spouses, where significant assets are transferred to a spouse who has already become non-resident before the remaining spouse ceases residence. These arrangements could avoid both donations tax and the income tax on cessation of residency. It is proposed that the donations tax exemption rules applicable to spouses be limited to donations made to a spouse who is a resident, effective from 25 February 2026. Taxpayers contemplating emigration structures should take careful note of this immediate effective date.

Saving

Once again, the interest exemption for natural persons remains unchanged at ZAR 23 800 for persons younger than 65, and ZAR 34 500 for persons who are 65 and older. These amounts have not been increased since 2013. However, the annual limits for tax-free investments and the maximum deduction for retirement fund contributions have both been increased:

• The annual limit for tax-free investments is increased from ZAR 36 000 to ZAR 46 000 per year. This measure aims to encourage South Africans to save more, given that national savings and investment rates are far below the levels needed to create generational wealth and support local investment.
• The limit for retirement fund contribution deductions is raised from ZAR 350 000 to ZAR 430 000 per year, allowing individuals to invest more each year on a tax-free basis.

Retirement

• The de minimis threshold for living annuity commutation is increased from ZAR 125 000 to ZAR 150 000.
• Additionally, the retirement interest de minimis threshold for annuitisation is increased from ZAR 247 500 to ZAR 360 000.
• The definition of ‘living annuity’ in the Income Tax Act will be amended to explicitly provide that the prescribed de minimis limit must be determined cumulatively where an annuitant holds multiple living annuities with the same insurer or fund. This clarification is intended to prevent the early commutation of multiple small annuities, which could undermine retirement income security.
• In the 2025 Budget, reference was made to the high levels of unclaimed assets in the financial system and the comprehensive report released by the FSCA during March 2024. This year’s Budget refers to the Government implementing a reform to centralise the management and investment of over ZAR 88 billion in unclaimed financial assets, which include retirement benefits, bank accounts, investments and insurance payouts. The proposed framework provides for the transfer of these assets to a central manager, alongside the appointment of a central administrator responsible for administration, record-keeping and tracing. The reform will be rolled out in phases, starting with the retirement fund sector given its established identification and monitoring systems. A discussion note will be released shortly for public consultation.

Individuals and employment

Tax-exempt employment benefits

In a welcome development, National Treasury has for the first time in many years (in some instances, a decade or more), increased the monetary thresholds for certain employment benefits. The increases range between 44% and 167%.

Whether these increases are sufficient to act as an incentive, remains to be seen. For example, if an employer provides an interest-free loan to an employee to enable the employee to purchase a home, this will be a taxable fringe benefit unless the employee earns ZAR 250 000 or less per year and the market value of the property on the date of acquisition does not exceed ZAR 450 000. These amounts have now been increased (for the first time since 2014) to ZAR 360 000 and ZAR 650 000 respectively.

The table below sets out the adjusted thresholds for a number of tax-exempt employment benefits:

Non-resident employers and permanent establishments

The Fourth Schedule of the Income Tax Act was amended in 2023 to extend the obligation to withhold employees' tax to non-resident employers conducting business through a permanent establishment (PE) in South Africa. Concerns have been raised that this could have anomalous consequences where the employee is not connected to the PE.

For example, a non-resident employer with a PE in South Africa could employ a South African resident in its home country who has no connection to the South African PE. It is proposed that the PE requirement for non-resident employers should include an additional requirement that the employee is effectively connected to the PE in South Africa.

Rollover of capital allowances between spouses

Section 9HB of the Income Tax Act establishes a rollover mechanism for the transfer of assets between spouses, but the recoupment component for allowance assets is not adequately provided for. It is proposed that section 9HB be amended to prevent the recoupment of capital allowances on the transfer of allowance assets between spouses and to provide for the carry-over of accumulated allowances to the transferee spouse.

VAT

Registration thresholds

In a significant measure to support small businesses, the compulsory VAT registration threshold will increase from ZAR 1 million to ZAR 2.3 million. This threshold has not been adjusted since 2009.
 
The voluntary VAT registration threshold will also increase from ZAR 50 000 to ZAR 120 000. These thresholds will be effective from 1 April 2026.

Customs controlled area enterprise and sez services

Taxpayers have requested clarity on whether all services rendered to a customs controlled area enterprise (CCAE) or special economic zone (SEZ) operator are required to be physically rendered therein to qualify for zero-rating. It is proposed that section 11(2)(k) of the VAT Act be amended to reflect that services must be physically rendered in the customs controlled area to qualify for zero-rating.

Zero-rating of gold

Section 11(1)(f) of the VAT Act provides for the zero-rating of gold, in specific forms, supplied to the SARB, SA Mint Company or to any registered bank that has not ‘undergone any manufacturing process other than the refining thereof or the manufacture or production in order to achieve such specific forms’. Refineries rely on pooled contributions from various depositors to achieve required purity and volume of gold, making it complex to trace or isolate unprocessed, primary-source gold and secondary gold (from previously manufactured jewellery, recycled bullion, etc). The result of this is that SARS often engages in protracted audit procedures to confirm the validity of the application of this provision (arguably to only primary-source gold). There is a matter currently awaiting judgment in the Constitutional Court (see Lueven Metals (Pty) Ltd v Commissioner for the South African Revenue Service), that has given rise to this amendment.

It is proposed that section 11(1)(f) of the VAT Act be repealed.

Notional input tax deduction period

The proviso to section 11(1) of the VAT Act provides that a vendor may not levy VAT at the rate of 0% on the export of second-hand goods if that vendor or any connected person to that vendor has claimed a notional input tax deduction on the acquisition of those second-hand goods.

There is a risk of financial loss to the fiscus when the vendor exports the goods and levies VAT at the rate of 0% and subsequently claims a notional input tax deduction on the acquisition of those goods (this in effect would be in contravention of the proviso to section 11(1)).

It is proposed that section 16(3) of the VAT Act be amended to restrict the deduction of notional input tax to a tax period not later than the tax period in which the supply of the second-hand goods takes place, subject to the five-year prescription rule.

Electronic services and intermediaries

Where a principal makes a supply of electronic services via an intermediary's platform, the current rules require a written agreement between the intermediary and the principal supplier for the intermediary to declare VAT on behalf of the principal. Intermediaries have found it a challenge to comply with this provision because of the difficulty in entering into agreements with smaller foreign electronic principals, who are often non-compliant. It is proposed that section 54(2B) of the VAT Act be amended to state that the default position is that the intermediary accounts for the VAT, unless there is an agreement to the contrary. Joint and several liability will still apply.

Leasehold improvements

A problem arises where leasehold improvements are supplied by a lessee vendor for no consideration to a lessor who is not a vendor, since the adjustment to be made under section 18C of the VAT Act (for non-taxable use) only applies in cases where the lessor is a vendor. It is proposed that the VAT Act be amended so that the leasehold improvement adjustment treatment is no longer restricted to lessors who are vendors.

Second-hand goods documentation

To mitigate the risk of fraudulent notional input tax claims, it is proposed that documentation requirements for second-hand goods vendors, required in terms of section 20(8) of the VAT Act be extended to those prescribed under the Second-Hand Goods Act, 2009, and its regulations.

Additional information required on tax invoice on acquisition of second-hand goods

As mentioned above, the export of second-hand goods is leviable with VAT at the zero-rate if the supplier has deducted notional input tax on acquisition of such goods – the vendor must levy VAT equal to the notional input tax deducted. As a result, in the case of an indirect export by a qualifying purchaser, the VAT Refund Administrator may only refund the qualifying purchaser to the extent that the VAT charged exceeds the notional input tax deduction.

To ease compliance for purchasers and administration, it is proposed that section 20 of the VAT Act be amended to require that the tax invoice issued by the supplier (on the subsequent supply of second-hand goods on which a notional input tax was claimed) reflects the purchase price paid by the vendor on acquisition and the amount of notional input tax previously claimed.

eFiler distinction removed

To simplify compliance, it is proposed that the distinction between eFilers and non-eFilers be removed by creating a single system that requires all VAT vendors to submit returns and make payments on the last business day of the month.

Carbon tax

Rate increases

The carbon tax increased from ZAR 236 to ZAR 308 per tonne of carbon dioxide equivalent from 1 January 2026.

Carbon fuel levy

The carbon fuel levy will increase from 1 April 2026 to:

• 19c/litre for petrol (from 14c/litre)
• 23c/litre for diesel (from 17c/litre)

The carbon tax cost recovery quantum for the liquid fuels sector will increase from 0.99c/litre to 1.29c/litre from
1 January 2026 to align with the headline carbon tax rate increase.

Carbon tax refund administration

It is proposed that the Customs and Excise Act be amended to facilitate the administration of carbon tax refunds claimed over a five-year period in line with the 2025 amendments to the Carbon Tax Act, given that a two-year prescription period applies for customs and excise refund claims.

Carbon tax thresholds for commercial/ institutional sector

Commercial and institutional sector entities have invested in back-up diesel generators to address load-shedding concerns. Stakeholders have noted that the cost of complying with the carbon tax is significantly higher than the tax liability for companies in this sector. To ease the compliance burden, it is proposed that the capacity-based threshold for commercial/ institutional activity (IPCC code 1A4a) be replaced with an emissions threshold of 25 000 tonnes of carbon dioxide equivalent, effective from 1 January 2026.

Separating carbon fuel levy from general fuel levy

Since SARS systems now accommodate the integration of carbon fuel levy tariff items, it is proposed that a new Part 5C be inserted into Schedule No. 1 of the Customs and Excise Act to provide separately for the administration of the carbon fuel levy.

Tax administration

Pre- or post-deposit screening of refunds

The Tax Administration Act requires banks to report suspicious tax refunds to SARS and hold the refunds for up to two business days while SARS investigates. SARS is working with banks to explore the screening of potential refunds prior to their deposit in taxpayers' accounts, ostensibly to expedite legitimate refunds. It is proposed to explicitly permit pre- or post-deposit screening of refunds by banks.

Interest relief on voluntary disclosure applications

Following the Constitutional Court judgment in the Medtronic International Trading case, which held that it is not possible to combine a voluntary disclosure application with a request for remission of interest, Treasury proposes an amendment specifically allowing applicants for voluntary disclosure relief to simultaneously apply for the separate remission of interest. This amendment is proposed to take effect from 1 March 2026.

Tax compliance status and remission of penalty requests

Section 256 of the Tax Administration Act (which governs tax compliance status) makes provision for the granting of ‘compliant’ status while a disputed amount is subject to suspension of payment. This exception does not include scenarios where a taxpayer's obligation to pay tax is automatically suspended pending the outcome of a request for remission of penalties (section 215(3) of the TAA), leading to taxpayers with legitimate penalty disputes being incorrectly reflected as ‘noncompliant’ on SARS’s system.

It is proposed that this anomaly be addressed and that the suspension periods under sections 164 and 215 of the Act be aligned to 10 business days after a request for suspension or remittance of penalties has been rejected by SARS.

Provisional tax underestimation penalty

Currently, if a taxpayer submits an estimate within acceptable tolerance but pays no provisional tax, the underestimation penalty cannot be imposed. It is proposed that, with effect from 25 February 2026, timely payment of the estimated amount is required before the taxpayer may place reliance on the estimate. The
ZAR 1 million cap for relying on amounts based on historical assessments will be increased to ZAR 1.8 million for years of assessment commencing on or after 1 March 2026.

Exempt entities and provisional tax

It is proposed that fully exempt entities and certain partially exempt entities that are regarded as companies be excluded from being classified as provisional taxpayers, reducing their compliance burden.

Alcohol and tobacco

Timing of rate adjustments

In what will surely be a widely welcomed response to extensive lobbying by stakeholders, beginning with the 2027 Budget, excise duty adjustments will take effect on 1 April each year, with the aim of easing the administrative burden on implementing the adjustments on Budget Day.

Alcohol

After several years of above-inflationary increases, Treasury has announced an excise duty increase on alcoholic beverages and tobacco products which is in line with the inflation forecast of 3.4% for 2026/27. Beer will effectively cost 8 cents more (on a 340ml can), wine effectively cost an additional 15 cents (per 750ml bottle) and the tax on spirits increases by ZAR 3.20 (per 750ml bottle). These increases take effect from 25 February 2026.

Stakeholder consultations on the alcohol excise policy review will continue during 2026.

Tobacco products

In addition to the excise rate increases, it is proposed that the statistical unit of measure for electronic heated tobacco products be changed from ‘per 10 sticks’ to ‘per kilogram net’, as taxing based on tobacco content (weight) rather than quantity is considered by Treasury to constitute a more effective public health strategy.

Customs and excise

ATA Carnet System

The ATA Carnet system enables the temporary admission of goods such as commercial samples, professional equipment and exhibition items, without payment of duties or taxes. Historically, carnets were issued in hardcopy and manually processed at the point of entry into South Africa.

In line with the World Customs Organization and the International Chamber of Commerce electronic ATA Carnet Project, which mandates fully digitised carnets, an amendment to the Customs and Excise Act is proposed to enable the Commissioner to issue rules relating to the issuing, use and submission of electronic carnets when goods are temporarily imported or exported.

Limitation on SARS’s discretion to exempt non-compliance for rebates

Following the Supreme Court of Appeal decision in JTI Manufacturing SA (Pty) Ltd v C:SARS which confirmed that section 75(10) of the Customs and Excise Act gives the Commissioner broad discretion to exempt or condone non-compliance with conditions prescribed in Schedules No. 3, 4 and 6, Treasury proposes to amend section 75(10) to specify the exact criteria triggering the exercise of SARS’s discretion. This purportedly aligns with a modern legislative approach, moving away from broad discretions and enhancing clarity and certainty.