News • 2025-03-14

Budget Speech Highlights 2025/2026

Budget 2.0

Upon the decision of Cabinet and the ruling issued by the National Assembly Speaker, Thoko Didiza, the original Budget Speech expected in February 2025 was postponed, and after much anticipation, the Budget Speech took place today - presented by the Minister of Finance, Mr. Enoch Godongwana.

The VAT increase was the biggest talking point in the run up to the Minister’s speech and it seems that the opposing parties in the Government of National Unity have had an impact, with the Minister’s proposed VAT increase dropping from the initial 2% increase, that was intended to be effective on 1 April 2025, down to a 0.5% increase effective 1 May 2025 and an additional 0.5% increase on 1 April 2026.

Our debt service costs and muted economic growth remain of concern with the Minister indicating that National Treasury had no other alternative but to turn to a VAT rate increase.

Some of the key budget takeaways are as follows:

Economic outlook and budget framework for 2025/2026:

• In 2024, the economy grew by only 0.6%. Over the medium term, GDP growth is projected to average 1.8%.

• The consolidated budget deficit is expected to narrow from 5% of GDP in 2024/25 to 3.5% of GDP in 2027/28.

• Government debt will stabilise at 76.2% of GDP in 2025/26.

• Debt-service costs will amount to R389.6 billion in the current financial year. This translates to 22 cents of every rand we raise in revenue. It is more than the amount we spend on health, the police and basic education.

• National Treasury has proposed reducing the budget deficit with tax policy proposals that are designed to raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27. Key to this additional revenue is the increase in the VAT rate.

Tax Proposals

Corporate Income Tax Rate: Remains the same at 27%.
Personal Income Tax: Personal income tax brackets remain unchanged. The primary, secondary and tertiary rebates also remain unchanged. National Treasury anticipates that additional revenue will be raised by not adjusting these brackets for inflation. It is interesting to note that the initial Budget Documents that related to the original February Budget did propose increases to these thresholds.
VAT: Increases by 0.5 percentage points with effect from 1 May 2025 and a second 0.5 percentage point increase will take effect from 1 April 2026. Therefore, the VAT rate increases from 15% to 15.5% on 1 May 2025 and to 16% on 1 April 2026.
The basket of items that are zero-rated for VAT will be expanded to include specific edible offal, specific meat cuts, unflavoured dairy liquid blends and specific canned vegetables to assist poor households.
Capital Gains Tax: No changes are proposed in respect of Capital Gains Tax.
Medical Scheme Fees Tax Credit: The Medical Scheme Tax credits remain unchanged.
Excise Duties: Excise Duties on alcoholic beverages will increase by 6.75%, which is above inflation. In addition, there will be an increase of 6.75% in excise duties on cigars and pipe tobacco and 4.75% on cigarettes and other tobacco products.
Fuel Levies: No change to the general fuel levy and road accident levy. However from 2 April 2025 the Carbon Fuel Levy will increase by 3c on both petrol and diesel.
Transfer Duty: The monetary thresholds for Transfer Duty will be adjusted by 10 per cent to compensate for inflation. The Transfer Duty tax rates will remain unchanged. These changes will come into effect on 1 April 2025.
Carbon Tax: Increased from R190 per tonne to R236 per tonne of the carbon dioxide equivalent.
Estate Duty and Donations Tax: Estate Duty and Donations Tax rates remain unchanged.

Important tax proposals to note:

1. Employment Tax Incentive: Government proposes to maintain the current value of the employment tax incentive. However, effective from 1 April 2025, the formula to calculate the incentive and the eligible income bands will be adjusted, in part due to adjustments of minimum wages since the last increase in the value of the incentive in 2022.

2. Cross-border tax treatment of retirement funds: The current treatment of cross-border retirement funds may have resulted in double non-taxation, particularly where South Africa is granted the taxing right by treaty. It is proposed that changes be made to the rules that currently exempt lump sums, pensions and annuities received by South African residents from foreign retirement funds for previous employment outside South Africa, with amendments in the current legislative cycle.

3. Government aims to expand South Africa’s tax treaty network and renegotiate some existing treaties to strengthen economic and trade relations, prevent double taxation and tax abuse, and enhance regional cooperation.

4. VAT Treatment of Temporary Letting of Residential Property: The VAT consequences of temporary letting by developers will be reviewed.

5. Audit Certificate to be Issued by Public Benefit Organisations: Clarity will be provided in respect of audit certificates to be issued for PBO’s to ensure the validity of section 18A certificates.

6. Understatement Penalties - Bona fide inadvertent error: Consideration will be given to explicitly linking the term “bona fide inadvertent error” to the definition of “substantial understatement”.

7. Transfer Duty Increase: The thresholds for Transfer Duty are adjusted by 10% for inflation.

8. Extension of the Urban Development Zone Incentive: The incentive is extended by five years to 31 March 2030 to address urban decay within inner cities.

9. Individual Assessed Losses – Extension of Ring-fencing: The current rules only apply to taxpayers at the maximum marginal rate. The threshold at which these rules apply will be reviewed.

10. Simplification of Diesel Refund Process: As from 1 April 2026, the administration process of the diesel refund system will be simplified.

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