Ramaphosa’s plan to withdraw tax hikes in South Africa will have serious consequences

President Cyril Ramaphosa has announced the government’s intention to withdraw previously proposed tax increases. 

This will be to support economic growth and help households absorb the rising cost of living, Ramaphosa said. 

The President’s comments came in response to a Parliamentary question about what measures the government are implementing to address the financial situation many South African households find themselves in. 

Inflation has spiked to 4.5% in the aftermath of the conflict in the Middle East, with petrol prices at record highs. The Reserve Bank has responded by raising interest rates by 25 basis points.   

This has significantly reduced households’ disposable income, slowing consumer spending and undermining economic growth. 

“Government’s strategy for addressing the cited concerns will be to focus on maintaining macroeconomic stability, implementing structural reforms, boosting state capacity, and raising the level of public investment,” Ramaphosa said. 

“To execute this, the government will, among others, support economic growth by withdrawing previously proposed tax increases for the 2026/27 financial year.” 

It is unclear which tax increases Ramaphosa is referring to, with no major tax hikes being implemented in the latest budget from Finance Minister Enoch Godongwana. 

In the March 2026 Budget Speech, Godongwana raised excise duties on alcohol and tobacco products by 3.4%, in line with inflation. The health promotion levy (sugar tax) was raised by the same amount. 

More significant increases were made to fuel taxes, with the General Fuel Levy (GFL) raised by 9 cents per litre for petrol and 8 cents per litre for diesel. 

The Road Accident Fund Levy was increased by 7 cents per litre, while the Carbon Fuel Levy was increased to 19 cents per litre for petrol and 23 cents per litre for diesel. 

Ramaphosa could be referring to these taxes, with the National Treasury slashing the GFL from April through the end of June to help consumers cope with rising fuel prices. 

The Treasury cut the GFL significantly, with it now being reintroduced with R1.50 added back in June and the rest to be added back in July. 

This will bring the GFL back to its pre-war level of R4.10 per litre of petrol and R3.93 per litre of diesel. 

Cutting taxes is a dangerous game

Cutting taxes is generally considered a good way to boost economic growth as it leaves more money in the pockets of working individuals. 

The best way to help households deal with the rising cost of living is not to take more money out of their pockets through rising tax rates. 

However, given the government’s precarious financial position, cutting taxes and limiting the revenue it collects can pose significant problems. 

Specifically, it matters which taxes are cut or which tax increases are removed, with South Africa having a highly concentrated personal and corporate income tax base. 

Cutting these taxes or limiting increases in tax rates can have significant benefits, such as raising investment and spending. 

This will also benefit the government through increased efficiency, as these taxes are relatively more difficult to administer, particularly for high-income earners and companies that invest heavily in minimising their tax liabilities. 

Other forms of tax, such as value-added tax and fuel levies, are relatively easy for SARS to administer and impose a minimal compliance burden.

Efficient Group chief economist Dawie Roodt noted that these taxes, particularly the GFL, have become a vital source of revenue for the state. 

This levy alone generates close to R100 billion in tax revenue in a year, and it also has the advantage of being collected from a broad base. 

Roodt warned that cutting the GFL, even to provide temporary relief, is a bad idea and cheap political point-scoring. 

“In the end, what is going to happen is that there will need to be an increase in other taxes to make up the shortfall, or the state will have to spend less,” Roodt said. 

“You will always get political parties giving you all sorts of solutions, but they will never tell you about the other effects and, potentially, increases to other taxes.” 

The efforts to cut such levies or limit their increases in response to a temporary shock are also problematic in themselves, with the state desperately needing the revenue to bolster its fiscal accounts. 

South Africa’s government debt as a share of GDP is above 78%, already costing the state 22% of annual revenue to service.