Tax shock on the cards for South Africa this week

South Africans could be facing several tax shocks this week when Finance Minister Enoch Godongwana tables his 2025 budget on Wednesday (19 February).

The Sunday Times reports that the National Treasury is considering hiking several taxes and possibly introducing new ones to cover a massive budget shortfall.

Citing anonymous insiders, the paper said that VAT hikes, fuel levy hikes, sin tax hikes and many other tax changes that impact personal and company taxes have been under discussion, while a wealth tax may be introduced.

While it is widely understood that South African taxpayers are at their tax limit, the country may be facing a budget shortfall exceeding R300 billion, with little to no options left for the Treasury to close the gap.

In previous years, the state could rely on a global commodities boom or withdrawals from the gold and foreign exchange contingency reserve account (GFECRA), but neither of these options is available in 2025.

Meanwhile, the government faces rising costs, including more bailouts for state-owned companies and expanded social spending – like keeping the Social Relief of Distress (SRD) grant going for another year.

The grant is expected to become a permanent basic income grant over time but has to be renewed each year until the change is made.

South Africa last hiked its VAT rate in 2018, when it was lifted to 15%.

Most stakeholders frowned upon this measure as it impacts everyone, including the poor. However, it has been argued that most countries have their VAT rates in the 15% to 20% range, so there is room to raise it.

Treasury reportedly argued that the impact on the poor would be softened by increasing the basket of zero-rated goods.

Following the 2024 medium-term budget (MTBPS), Treasury asked stakeholders for feedback on possible tax policy changes.

It then presented a list of tax changes that it said would be under consideration for the 2025 Budget. These include:

• Increasing the number of VAT zero-rated items;
• Increasing the headline corporate income tax rate to 28%;
• Introducing a progressive net wealth tax on high-net-worth individuals and financial transactions taxes;
• Increasing PIT on high-income earners, along with increases in inheritance, estate, and luxury import taxes;
• Reducing tax evasion by reducing/eliminating tax breaks for high-net-worth individuals;
• Removal of medical tax credits;
• Systematic review of tax incentives and removal of ineffective incentives;
• An increase of the Health Promotion Levy to the recommended 20%; and annual inflation-related increases thereafter.

Despite the buzz around possible tax hikes, economists are not convinced that major changes will be coming in the budget.

Economists at Nedbank this week noted that the country is likely to see tax hikes in the usual places, such as the typical hikes to sin taxes on alcohol and tobacco, and a lift in the fuel levy.

The fuel levy hasn’t been hiked since 2022, and given the much lower fuel inflation in the past year, it may be due for a change, the group said.

For income taxpayers, the bank said that there is likely to be another freeze on adjusting the tax brackets, which will eat away at salary and wage hikes.

While the government has made it clear that medical aid tax credits will be removed to fund the National Health Insurance scheme, Nedbank said it is unlikely to happen in 2025.

One tax that will likely be raised, though, is the health promotion levy—or sugar tax, as it is more commonly known.

The sugar industry has called for the tax to be scrapped, citing the monumental harm it has does to the sector and jobs within it. However, there has been no indication that the tax will be removed or slowed down.

Speaking at the World Economic Forum in January, Health Minister Aaron Motsoaledi said that the health tax was there to combat lifestyle diseases and to decrease the burden of healthcare on the state.

“People believe we want their money. We don’t; we just want them to eat less sugar, and that’s why there is a tax,” he said.