From bad to worse for taxpayers in South Africa

South Africa’s already overburdened taxpayers have been dealt another blow during the 2025 budget speech, with the Treasury increasing VAT while once again leaving income tax brackets unchanged.

This is feedback from Thomas Lobban, Director of Ibex Consulting, a division of Latita Africa, who said that the unexpected postponement of the annual Budget Speech last month sent shockwaves through South Africa and unsettled market sentiment.

“Now, the reason for the delay has become clear – there is little good news for taxpayers,” Lobban said.

“Minister of Finance, Enoch Godongwana, faced the unenviable task of outlining the government’s plans for expenditure cuts, infrastructure development, and, most critically, new tax proposals.”

VAT increases were an especially controversial issue heading into the 12 March budget, since a proposed 2% VAT increase was the reason the budget was initially postponed, since the government of national unity (GNU) could allegedly not agree on the issue.

This proposal was also met with widespread criticism and concern from the public, which, according to many experts, is already incredibly overtaxed.

Godongwana confirmed that the VAT would increase by 0.5% in the 2025/26 fiscal year, followed by another 0.5% increase the following year.

“While this move was anticipated, what has come as a shock is the decision to keep personal income tax brackets unchanged for the third consecutive year,” Lobban said.

“With no adjustments for inflation, individual taxpayers will effectively pay more tax in real terms, leading to diminished purchasing power across the board.”

On top of this, a proposal to tax previously exempt foreign pension income is set to hit expatriates and returning retirees hard, he added.

“These measures raise serious concerns about fairness and economic impact, with little upside benefit foreseen.”

Despite the overall bleak outlook, the Budget Review does contain some positive elements, Lobban said.

“Certain tax proposals provide increased legal clarity, while others offer modest relief in specific cases.”

“Notable measures include the reinstatement of a tax exemption for child maintenance payments funded from after-tax income and a tax deduction for foreign taxes incorrectly levied on employment income.”

During his speech, the Minister stressed that the government is aware that a lower overall tax burden can help increase investment, boost job creation, and unlock household spending power.

“However, the government’s proposed measures indicate that it has run out of financial headroom and sees no alternative but to increase the tax burden.”

“In essence, while the government acknowledges that lower taxes could stimulate economic growth, it simply cannot afford such a policy direction at this time.”

Notably, Lobban pointed out that National Treasury, recognising the increasing financial strain on taxpayers, has proposed granting full access to the two-pot retirement fund system in cases of retrenchment – a departure from the current restrictions.

“This signals a concerning acknowledgment of the economic struggles that businesses and employees are likely to face in the coming year. It is, by all accounts, a troubling forecast.”

According to Lobban, the only unequivocally positive announcement in this year’s Budget Speech was the increased budget allocation to the South African Revenue Service (“SARS”).

“SARS will receive R3.5 billion in the current fiscal year, with an additional R4 billion over the medium term.”

“While SARS may not be universally popular among taxpayers, a well-resourced revenue service is essential for both taxpayers and the country’s fiscal health.”

“Improved enforcement could help address the chronic shortfalls in revenue collection.”

Godongwana noted during his speech that the rewards of higher tax compliance and efficiency take time.

Once again, the minister stressed that the investments South Africa makes in SARS now will allow the collector the time to make improvements.

“Nevertheless, for most taxpayers, immediate relief simply remains out of reach,” Lobban said.

“Whether the situation improves or worsens over the medium term remains to be seen – assuming, of course, that the Medium-Term Budget Policy Statement proceeds as scheduled in October.”