Taxpayers in South Africa are in serious trouble
The South African Revenue Service (SARS) is falling short of its goal to collect an extra R35 billion in tax revenue this year, which means taxpayers should expect more aggressive measures in 2026.
While SARS is lagging behind projections required to secure the additional revenue, data from the National Treasury revealed, it is on track to meet its 2025/26 baseline target.
The taxman has collected approximately R39.3 billion so far this fiscal year, surpassing the R37.5 billion needed to meet its baseline goal of R100 billion, which it achieved in the 2024/25 fiscal year.
However, the collections fall short of the R49.3 billion needed to stay on course for the higher target aimed at easing fiscal pressures.
SARS’s published figures include monthly cash collection profiles to track progress against targets.
Finance Minister Enoch Godongwana has warned that spending cuts may be unavoidable if revenue fails to meet expectations, and taxpayers are on the hook for R20 billion in additional tax measures.
Earlier this year, Godongwana said exceeding the collection target could eliminate the need for an additional R20 billion in taxes planned for 2026/27, as the government seeks to contain debt projected to peak at 77.4% of GDP.
SARS was allocated an additional R7.5 billion over the medium term in the 2025 budget, which was expected to bring in R20 billion to R50 billion in additional collections.
The tax service believes there is a haul of over R300 billion in uncollected tax that it could tap into to boost revenue.
But if it fails in this task, then the burden will be saddled onto taxpayers, who are already suffering under the weight of high taxes.
Political resistance to tax increases has posed challenges for Godongwana, who has prioritised maintaining fiscal credibility amid South Africa’s economic strains.
Godongwana attempted to boost taxes this year by hiking VAT to 17% in his first attempt at the budget in February.
This was widely rejected, resulting in a second budget looking to hike VAT to 16% over two years.
While the ANC managed to secure enough votes to pass this budget with the help of Action SA and Build One South Africa, a court challenge by the DA and EFF saw the attempted VAT hike scuppered.
This resulted in the third and eventually final budget for the year with no VAT hike, but a glaring hole in revenue collections.
Without the easy tax swipe of a VAT hike, the National Treasury was forced to find tax revenue from other sources.
This included increasing the general fuel levy and not adjusting tax brackets or medical aid tax credits for inflation. It also put South African taxpayers on the hook for R20 billion in additional tax measures in 2026.
South Africans are overtaxed
The reality is that South African taxpayers are already overtaxed and are far beyond the Laffer Curve. The curve represents the “optimal tax” point where the state can collect maximum revenue.
Higher taxes beyond this point may disincentivise work, entrepreneurship, and investment or lead to immorality and non-compliance, effectively reducing the overall tax base and revenues.
With SARS struggling to meet its additional tax collection goals—despite ramping up compliance measures and coming after various sectors more aggressively—the country may be seeing the impact of the Laffer Curve in effect.
Data from Aluma Capital earlier this year showed that South Africa is well beyond the optimal tax point on the curve across Income Tax, Corporate Tax and VAT.
The relatively small tax base of 7.9 million income taxpayers are being expected to pay more and face increased pressure from SARS, while government spending continues to rise unabated.
Unfortunately, government spending is also highly ineffective, with South Africa’s fiscal multiplier below one.
A fiscal multiplier is an economic representation of how much economic growth is delivered through government spending.
If the multiplier is above one (1x), government spending is at least resulting in nominal GDP growth. If the multiplier is below one, it means a government is spending more than it is eventually getting out.
South Africa’s fiscal multiplier is below one, wih the country’s economy stagnating at an average of 0.7% growth over the last decade.
In simple terms, this means that each rand the government spends results in less than one rand’s worth of additional national income. Put even simpler: the government wastes the money it gets.
Looking at the budget and government’s plans, the state wants to increase spending on social grants, invest R1 trillion on the infrastructure it has neglected for decades, and it wants to roll out costly schemes like National Health Insurance and a basic income grant.
Meanwhile, taxpayers are confronted with scandal after scandal of rampant corruption or waste and looting of public funds, all while the state pushes anti-business and anti-growth economic policies.
Taxpayers also get very little in return for the money they hand over to the state.
Households are often forced to turn to private healthcare, private security, private education, private energy generation and other private services amid the collapse of public services.
Godongwana will present the nation’s medium-term budget policy statement in November.
Personal Income Tax Laffer Curve
Corporate Income Tax Laffer Curve
Value Added Tax Laffer Curve
(With Reuters)
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