by ALTHEA SOOBYAH
JOHANNESBURG, (CAJ News) – ONE of the biggest issues with the budget every year is that South Africa is not investing in growth-enhancing initiatives with a significant proportion of the budget going to paying off debt and social grants.
South Africa urgently needs to look at other ways to increase revenue other than relying on the tax base. At some point it will reach a saturation point. Growth enhancing structural reforms which support small and medium sized businesses will help to address unemployment and grow the tax base. One of the ways to increase the tax base is to grow the employment rate.
VAT increase
Finance Minister Enoch Godongwana announced that VAT will increase by 0.5% from 1 May 2025 with a further 0.5% increase from 1 April 2026 during his annual national budget announcement. The National Treasury believes that VAT is an efficient source of revenue. This latest increase will add a net R11.5 billion in 2025/6. The last time VAT was raised was in 2018 when it increased from 14% to 15%. Three-quarters of VAT (75%) is paid by individuals in the top four expenditure deciles.
Government is expanding the basket of zero-rated items and making no changes to the fuel levy to support lower income households and mitigate the impact of a higher VAT rate.
A 1% VAT increase with the 0.5% increase this year and another 0.5% in 2026 is palatable, recognising that they can’t over burden the consumer with a full 1% immediately.
Consumption of retail at the upper end will feel the biggest impact of a higher VAT rate. South Africa still performs relatively well compared to other emerging markets when it comes to our VAT rate, on a par or lower than the global standard.
Personal income tax rates:
Personal income tax is the biggest contributor to the national budget. The 2025 national budget did not include any inflationary adjustments to personal income tax brackets or to medical credits. One of the biggest challenges for the fiscus is that 32.7% of personal income tax is paid by 224,959 top earning individuals with all personal income tax paid by only 1.3 million individuals. Although 6.5 million individuals are registered for tax, they fall below the tax threshold. Bracket creep will add around R19.5 billion to the fiscus.
Corporate income tax
Announcing the 2025/6 national budget, Finance Minister Enoch Godongwana said the corporate tax rate would remain unchanged. South Africa ranks 13th out of 123 reporting countries when corporate tax is taken as a percentage of GDP.
NB: Althea Soobyah is National Head of Tax, Forvis Mazars in South Africa.
– CAJ News