SARS set to squeeze South African taxpayers harder than ever

SARS is expected to consider implementing measures to enhance tax compliance to increase revenue collection and make up for any potential shortfall from slower-than-expected economic growth this year. 

South Africa’s tax collection for the current financial year is likely to disappoint unless SARS can improve compliance and make inroads in closing the country’s R800 billion tax gap. 

This is largely due to the country’s deteriorating economic growth outlook, with GDP data for the first quarter disappointing and the United States set to impose fresh tariffs on South African exports. 

Lower economic growth tends to translate into a decline in tax revenue or, at least, less-than-expected tax revenue, resulting in the need for enhanced compliance. 

This is feedback from PwC, which outlined the impact of slower economic growth and the potential impact of tariffs on South Africa’s tax collection in its latest Synopsis. 

Since April 2025, South African exports have been impacted by a blanket 10% tariff on all goods and a 25% tariff on automotive exports to the United States. 

This will potentially increase to a 30% across-the-board tariff on 1 August, if the country cannot negotiate a trade deal with the United States. 

PwC said the biggest impact is not necessarily the tariff increases, but the effective end of South Africa’s participation in the African Growth and Opportunity Act (AGOA). 

For years, this has given South African agricultural products and automotive exports preferential access to the world’s largest economy. 

However, South Africa is likely to be declared an ineligible party to AGOA at the next US Cabinet review later this year. 

If this happens, even if no additional tariffs are placed on South Africa, local exporters will be subject to extra export duties when exporting to the United States, PwC said. 

This would impact South Africa’s economic growth as the United States is a vital trading partner, with trade between the countries valued at R377 billion. 

“This would directly impact the revenue authority’s ability to meet its annual revenue collection targets, resulting in a budget shortfall which, in turn, would impact public services,” PwC said. 

“SARS may consider implementing measures to enhance tax compliance to increase revenue collection, including more aggressive compliance programmes, stricter enforcement, and increased tax rates.” 

Taxpayers being squeezed

South Africa’s tax burden as a share of GDP has grown steadily over the past decade, with the economy stagnating and government spending skyrocketing. 

This has resulted in the government needing more revenue from the same pool of taxpayers, whose incomes have not grown substantially over the past decade. 

South Africa’s economy has grown at an average annual rate of 0.8% for the past decade, while its population has grown at 1.6% per year. 

This means that, on average, South Africans have gotten poorer over the past decade while the state demands more tax revenue to fund its expenditure. 

As a result, South Africa’s tax-to-GDP ratio is expected to average 25.5% over the medium-term expenditure framework for the next three years.

This is the highest level it has ever been in South Africa, and it is unlikely to be reduced significantly in the coming years, as SARS will squeeze taxpayers harder. 

The National Treasury is placing immense pressure on SARS, while giving it additional resources, to close South Africa’s estimated R800 billion tax gap. 

This is the difference between how much tax is legally due to SARS and the amount that is actually paid on time.

Finance Minister Enoch Godongwana made it clear in his third Budget Speech for the 2025/26 financial year that if SARS cannot close this gap, tax increases may be needed next year. 

This may include another year without an inflationary increase to income tax brackets and a further increase in the General Fuel Levy.

However, it could also mean that a small VAT hike could be back on the table, according to Old Mutual Wealth’s Izak Odendaal. 

The Treasury has only gone so far as to say that other, unspecified tax measures might have to be taken in the coming financial years. 

If SARS improves collection, additional tax measures will not be necessary, with the Treasury giving the Revenue Service an extra R4 billion to strengthen its capacity.