Overall impression of the 2025 National Budget:

By Althea Soobyah, National Head of Tax, Forvis Mazars in South Africa

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. 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 13^th out of 123 reporting countries when corporate tax is taken as a percentage of GDP.

SIN TAX comment  

by Elmien Theron, Associate Director, Forvis Mazars in South Africa

As expected, the 2025 National Budget announced above inflation sin tax increases on alcohol (6.75%), tobacco and cigarettes (4.75%) and cigars (6.75%)

In addition to raising additional taxes, alcohol taxes are aimed at reducing road fatalities. Interestingly, the only alcohol not facing increased tax is traditional beer, although it has a much higher alcohol content. The question that needs to be asked is how effective a higher alcohol tax is on reducing road fatalities.

Corporate short term fix  - Not a bold budget – it will not address the debt burden in the medium to longer term – it is a short-term fix

by Etienne Louw, Director, Tax Consulting, Forvis Mazars in South Africa .

There is little for the corporate sector to get excited about in the 2025/25 National Budget.

There is no increase to corporate income tax, given the fact that when corporate tax is taken as a percentage of GDP, South Africa ranks 13th out of 123 reporting countries, so South Africa is very much on the high end; There was an increase in collections from the corporate sector – however, there was a disturbing 28% fall in receipts from the mining sector, given it is one of the country’s biggest GDP contributors.

Furthermore, there is no reining in of government spending. Consolidated government spending is budgeted to increase at an annual above-inflation average of 5.6%, from R2.4 trillion in 2024/25 to R2.83 trillion in 2027/28. Nonetheless, economic development is the fastest growing function, driven by higher capital investment, followed by debt-service costs.

An important component of the budget is investment in the capacity of SARS to improve enforcement and increase the number of people paying tax. It will be interesting to see where SARS focuses its attention through its AI and data analytics tools for improved compliance and tax collection. The focus would best be addressed to improving their administration around unregistered taxpayers. This is where the biggest improvement in the fiscal position could be made – paling the announced VAT increases into insignificance.

National Treasury anticipates that withdrawals from the two-pot system will increase in the coming year, having over-recovered in 2024/25. This may have an impact on employees.

A VAT increase affects everyone, including the corporate sector, and government is mitigating the adverse effects for lower-income households, including through above-inflation increases to social grants, not increasing the general fuel levy, and expanding the list of foods zero rated for VAT. Ostensibly it may have been better to have a 1% immediate increase as it is administratively burdensome spreading it over two years (albeit to soften the blow).

Revenue measures to raise R28bn in 2025/6, including a VAT increase of 0.5% from 1 May 2025 with a further 0.5% increase from 1 April 2026.

This suggests that the government realises it cannot over-burden the county with a high VAT increase. South Africa is not out of line with the global average VAT rate. To provide relief to lower-income households, the government proposes an additional VAT zero rating of essential food items. The increase in the VAT rate (coupled with the expansion of essential food items qualifying for zero rating) aims to raise a net R11.5bn [R13.5bn - R2bn] in 2025/6.

There will be no inflationary adjustments made to any tax brackets in personal income tax (PIT), meaning bracket creep will increase tax revenue with salary increases putting employees into a high tax bracket. The government is squeezing the consumer with three years of bracket creep now.

Growth is projected at 1.9% in 2025, easing to 1.8% in both 2026 and 2027, while the debt to GDP ratio is 76.2% in 2025/26 with debt service costs (interest) at 5.3% in 2025/26. Both measures are up 0.1% from 2024/5.

SARS funding – by Robin Galloway, Senior Manager, Forvis Mazars in South Africa

There has been a long-standing call to properly fund and capacitate SARS which collects more than 90% of government revenue but remains underfunded. The SARS commissioner says that more than R800 billion is lost due to unpaid tax debts, overdue tax returns and uncollected tax inventory. SARS should have an annual budget of approximately R18 billion but last year was allocated just R12.4 billion – leaving a funding gap of R5.6 billion, or over 30%.

Further to the R3.5 billion that was allocated to SARS in the 2024 Mid Term Budget Speech, to modernise its operations and enhance taxpayer services, the 2025 National Budget allocated an additional R4 billion to SARS over the next three years, resulting in a total allocation of R7.5 billion.

An adequately funded SARS is critical to facilitate improved revenue collection. This additional allocation will enable SARS to collect tax that is already due to the fiscus as opposed to the fiscus relying various forms of tax hikes every year to fund its fiscal deficit. This is a positive development in our view, and is particularly important given SA’s lethargic economic growth.