Tax changes on the cards for South Africa
It is highly likely that South Africa’s taxes will change in the upcoming budget, but whether the country will see tax increases is uncertain.
Finance Minister Enoch Godongwana is set to deliver the 2025 Budget Speech on Wednesday, 19 February 2025. This year’s budget could prove one of Godongwana’s trickiest yet.
While South Africa’s economy is moving in the right direction with several reforms in place, it remains fragile and susceptible to fiscal slippage.
Therefore, the minister must balance funding government initiatives to invest in economic development and structural reforms while maintaining fiscal discipline.
Last year’s budget has largely been celebrated for its balanced take on growth versus discipline.
In particular, many applauded the National Treasury’s decision to tap into the Reserve Bank’s Gold and Foreign Exchange Contingency Reserve Account (GFECRA).
The government drew R150 billion from this account to bolster its ailing finances and curb its debt burden.
Over R100 billion has already been transferred to the National Treasury, with R25 billion to be handed over in the next two financial years.
At the time, this move was praised as a way to slow down the growth rate of the government’s debt and thus provide relief in the form of reduced debt-servicing costs in the future.
However, it is unlikely that the government will be able to tap into the pot of gold again this year, and government revenue will be the theme of this year’s budget.
Specifically, the government will need to find reliable sources for all the money needed to make meaningful economic reforms like infrastructure investment and support for struggling state-owned enterprises.
Therefore, many have speculated that tax hikes could be on the cards, as the government may look to taxpayers for additional revenue.
In the 2024 February Budget, Godongwana did not introduce significant changes to taxes in South Africa.
However, the government faced a significant deficit in 2023, which meant it had to find other revenue sources when preparing the 2024 Budget.
Therefore, the government turned to “bracket creep” to raise revenue, which saw South Africans pay up to 21% more tax than a decade ago.
Bracket creep happens when tax tables and deduction limits are not adjusted for inflation. This makes taxpayers pay more, resulting in greater revenue without hiking rates.
However, this year, the government may decide to change South Africa’s taxes to increase revenue.
Below is the view of three economic experts on what to expect in terms of taxes from the 2025 budget.
Citadel’s Maarten Ackerman
Citadel chief economist Maarten Ackerman said the key theme for this year’s budget will likely be balancing expenditure and revenue in a low-growth environment without the ability to significantly raise taxes or increase debt
Therefore, given South Africa’s already high tax burden, he said significant tax hikes are unlikely.
However, he warned that the government may explore alternative revenue measures, such as adjusting value-added tax (VAT) structures or revising tax policies affecting high-net-worth individuals.
Ackerman highlighted that this might include potential changes around Regulation 28, capital gains tax, and dividend tax.
“With limited fiscal flexibility, this budget must focus on efficiency and curbing unnecessary expenditure while fostering an environment that supports sustainable economic growth,” Ackerman said.
Investec’s Annabel Bishop
Investec chief economist Annabel Bishop said revenue is set to be the key part of this year’s budget – but it likely won’t come from tax hikes.
She said the key to higher government revenue is economic growth and organic revenue.
In simple terms, when the economy grows, consumers have more money in their pockets, and businesses make more money.
Therefore, the government can collect higher revenue from VAT, corporate income tax, personal income tax, customs, and excise taxes.
Bishop explained that all of these increase when the economy grows closer to 3% rather than 0.5%.
“What we are experiencing at the moment is a very weak economy that has persisted for several years, with the expectation that it will continue to be weak,” she said.
“That, of course, has a negative impact on business confidence, which remains depressed.”
Therefore, she explained the upside will come when businesses realise the government has actually delivered more than expected.
For example, last year, in the president’s State of the Nation Address, many people were sceptical when he said Eskom would end the electricity crisis soon – but it happened.
This year, the president spoke about ending the freight crisis quickly, which could happen within the next few years.
Bishop explained that all these factors would contribute to supporting growth, which would be very surprising for investors, the business community, and credit rating agencies.
On the topic of higher taxes, Bishop believes South Africa is “taxed out”. She said the country’s tax buoyancy ratio shows it cannot absorb more on the tax front.
“While we may have a weaker year from a GDP perspective, I think this will be the turning point, and we will start seeing strong growth from next year,” she said.
KPMG’s Joubert Botha
KPMG South Africa’s executive director and head of tax and legal, Joubert Botha, said 2025 may well be a year of tax consolidation with consequential adjustments.
However, he does not expect major announcements or proposals, especially considering the global minimum tax and the two-pot retirement system.
From a tax perspective, Botha expects the following:
- From an expense and cost perspective, he predicts more funds for SARS, which will likely be used to continue with the compliance and collection drive and tax modernisation plans and projects
- He does not foresee any major change in the VAT rate. However, South Africa is likely to see more products added to the zero-rated items list
- Corporate tax may see adjustments around exemptions, allowances and incentives
- Botha expects the government to focus on maintaining its tax base. The government will continue to focus on this and implement amendments and adjustments to address tax loopholes and transactions that erode the base
- In terms of personal tax, he said South Africa is going to see more clarity on the use of medical aid tax credits and the future thereof. There may also be a cap or reduction in medical aid tax credits
- With regard to the wealth tax, Botha expects announcements and perhaps even disclosure documents around a future wealth tax
- Legislative adjustments to international tax are also likely
“There will very likely be a large focus on AI and the opportunity for such technology to improve tax collection, management and disputes,” he said.
Comments