Tax hikes are back on the cards in South Africa

Tax hikes are firmly back on the cards for South African taxpayers as the optimistic Budget from Finance Minister Enoch Godongwana has been undone by geopolitical events. 

Godongwana’s 2026 Budget in February was filled with positive news relating to the government’s finances and relief for taxpayers. 

The government’s debt burden was forecast to stabilise, and economic growth was expected to pick up to 2% by 2028. 

All of this was underpinned by a strong performance from SARS, which managed to squeeze more revenue than ever out of the stagnant South African economy. 

Other factors were also boosting state finances, with interest rates expected to decline after the implementation of the new 3% inflation target. 

This would cut the government’s debt-servicing costs and boost economic growth by making debt significantly cheaper for individuals and businesses. 

However, airstrikes on Iran from the United States and Israel three days after Godongwana’s budget began unravelling things. 

Oil prices surged, and inflation rose with them, prompting the Reserve Bank to hike interest rates twice rather than steadily cutting them. 

This has impacted economic growth, which is now expected to come in at 1% for the year, compared with the National Treasury’s 1.6% estimate in February.

The South African Institute of Taxation (SAIT) said all of this will combine to put renewed pressure on the government’s finances. 

It expects Godongwana to push back the forecast for debt stabilisation and change the full-year budget deficit target to above 4%. 

This will impact the National Treasury’s forecasts for the coming years, which include expectations for falling debt-servicing costs. 

Currently, the government spends 22% of tax revenue on servicing its debt load, which equates to R1.2 billion a day being spent on nothing. 

There is also the small matter of R17.2 billion in revenue forgone by extending relief to motorists through a reduction in fuel levies. 

The National Treasury said this will be covered by its reserves and through increased collection from SARS. 

Tax hikes in play

The Medium-Term Budget Policy Statement (MTBPS) typically does not include any announcements on tax increases. 

Instead, it focuses on longer-term trends in economic growth, debt levels, state spending, and external conditions. 

However, Godongwana will give an update regarding the state’s budget balance for the current financial year as of the end of September. 

This will reveal the state of the state’s finances and whether the Treasury’s predictions of debt stabilisation will be realised in the current financial year. 

More importantly, it will show whether SARS has been able to continue squeezing more revenue out of a stagnant economy to cover the R17.2 billion lost to fuel levy relief. 

“If the gap cannot be closed through spending cuts and SARS collections, SAIT expects the MTBPS to hint that the national debt will not decline as projected,” SAIT said. 

It expects the MTBPS may provide early indications of tax measures that could feature in the February 2027 Budget, including no repeat of the relief offered in 2026. 

While the government is expected to prioritise expenditure restraint, SAIT believes that a weaker revenue outlook could increase pressure on the fiscus. 

“If the fiscal gap cannot be sufficiently addressed through spending reductions and stronger tax compliance, Treasury may signal the need for additional revenue measures in 2027,” it said. 

“In such circumstances, a return to fiscal drag is more likely than major rate increases, with the full inflationary adjustment to personal income tax brackets granted in the 2026 Budget potentially not being repeated.”

This would result in salaried taxpayers facing increased tax burdens due to bracket creep, even without higher tax rates. 

However, the National Treasury has been clear that if SARS’ collections do not maintain their strong growth, tax hikes could be on the cards.

This is unlikely to take the form of personal tax increases, as those are already very high relative to South Africa’s peers and the tax base is highly concentrated. 

Broad-based taxes, such as VAT, are more likely to be targeted by the National Treasury along with above-inflation increases to sin taxes.