Government has remained true to its word to withdraw additional tax increases in the 2026 budget if collections perform in line with expectations. The previously proposed R20 billion tax increase for the 2025-’26 tax year is off the table.
More good news for taxpayers: full inflationary relief from bracket creep and an inflationary increase in the medical tax credit and rebates.
This is the first time in two years that the government has provided relief to overburdened individuals. In the absence of this relief, individuals would have faced a “stealth” tax increase of almost R14 billion.
Persistent pleas for increased tax thresholds found fertile ground, with a host of thresholds raised – some not adjusted in more than 25 years.
A major adjustment is an increase in the value-added tax compulsory registration threshold from R1 million to R2.3 million. Capital gains tax, as well as savings and retirement thresholds, have all been increased in line with inflation. Many of these increases are aimed at assisting small businesses and encouraging savings.
Tax performance
National Treasury notes in the 2026 Budget Review that South Africa’s tax system performed well, despite challenging economic conditions. The gross tax revenue estimate for the 2025-26 tax year is revised up by R21.3 billion from the 2025 estimates, despite lower economic growth.
However, the medium-term tax revenue outlook is revised down by R57 billion relative to the 2025 Medium-Term Budget Policy Statement. This is primarily due to the withdrawal of the proposed R20 billion tax increases.
Higher than expected value-added tax (VAT), corporate income tax and dividend tax collections improved the in-year outlook. VAT collections have been revised up from R482 billion to R487 billion, and company income tax has been revised up from R338.8 billion to R346.5 billion. Dividends tax has increased by R4.2 billion to R46.3 billion.
Provisional corporate tax collections have shown broad-based growth, other than in the manufacturing sector, where revenue declined. Corporate profitability increased steadily during 2025, with December 2025 mining tax collections up 29% on December 2024 owing to high platinum group metals and gold prices. Although the near-term benefit of the precious metals upswing is positive for the revenue outlook, the gains are expected to be lower than in the previous period of high commodity prices (2020/21 to 2022/23) as the current highs are occurring for a narrower set of commodities.
Dividend tax collections were boosted by large once-off collections from the mining and retail sectors and a recovery in corporate profits. Strong growth in collections from fuel importers drove overall fuel levy collections in 2025-26 after the sharp drop in demand in the previous year, when less diesel was used to keep the lights on.
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However, personal income tax collections are projected to fall short of 2025 budget estimates, reflecting subdued private-sector wage growth. It is revised down from R792.4 billion to R786.2 billion.
Specific excise duty collections are also expected to fall short of last year’s projections. This is due to cigarette and petroleum products receipts contracting over the first 10 months of 2025-26 relative to the same period in the previous year.
Tax base must grow
National Treasury acknowledges that SA’s personal income tax base is “highly progressive, yet relies heavily on a narrow tax base”.
The top 13% of individual taxpayers pay over 60% of personal income tax, and nearly half of personal income tax is paid by the 7.7% of taxpayers with taxable income above R1 million per year.
Both personal and corporate income tax contributions to total tax revenue are higher in South Africa than the average across Organisation for Economic Co-operation and Development (OECD) countries. South Africa has become heavily reliant on these two direct taxes, which accounted for approximately 55% of total tax revenue in 2023.
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Treasury notes that it remains important to manage the tax burden to ensure it remains “sustainable and efficient”. High direct taxes erode disposable income and consumption expenditure and may incentivise stronger avoidance measures.
“Beyond a certain point, increases in tax rates may not generate additional revenue and are detrimental to economic growth. Ultimately, the best option to increase revenue is by broadening the tax base and growing the economy.”
The South African Revenue Service (Sars) has fallen short in its tax debt collections by around R15 billion. Last year Sars commissioner Edward Kieswetter committed the tax agency to the collection of additional tax debt – from R95 billion to at least R120 billion.
Total tax debt stood at R646 billion at the end of January this year. By that date Sars had collected R79 billion, hence the shortfall of R15 billion. Sars has been appointing additional staff members and is still in the process of appointing more people to increase its efforts to meet the tax debt collection target.
This article was republished from Moneyweb. Read the original here.
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