Treasury’s good news message for businesses in South Africa

Despite the National Treasury’s desperation to boost revenue and its statement that all tax measures will be considered for 2026, businesses should take solace in the fact that it is not keen on touching the Corporate Income Tax (CIT).

Responding to the 2025 Budget debate in May, the National Treasury said that it will be on the hunt for an additional R20 billion in tax in 2026 to make up for the gap caused by taking out VAT hikes in 2025.

While it did not specify which direction it would go, noting that it will also depend on the tax outcomes from this year, it did say that all suggestions would be considered.

Various stakeholders have submitted proposals for ways that the state can fill the R70 billion budget gap over the next few years.

Some have called for spending cuts and expenditure reviews, but these come with the consequence of cutting funding to government programmes.

Others have called for more focused tax efforts, such as a wealth tax or, crucially, raising CIT to plug the hole.

Treasury said that any tax increase in 2026 will come with negative impacts and trade-offs, which is the main policy question it must navigate.

But good news for businesses in South Africa is that raising CIT is very far from the top of potential changes.

“Our Corporate Income Tax rate is too high,” Treasury said. “This deters investment and makes South Africa uncompetitive.”

The finance department noted that companies operating in South Africa already contribute more corporate tax revenue as a share of GDP than most other countries.

This is at a rate higher than the global average, the OECD region, Africa, and the Asia-Pacific region.

Raising corporate taxes is a very bad idea

Out of 123 countries reporting to the OECD, companies in South Africa already pay the 13th highest taxes, when expressed as a percentage of GDP.

“Empirical studies show that corporate income taxes have a negative impact on growth, and often more so than other tax instruments,” Treasury said.

Modelling done in 2014/15 showed that trying to raise R45 billion through CIT hikes would have led to real GDP decline of 2.64% by 2017.

This is far higher than the -1.4% from Personal Income Tax and -0.6% from Value-added Tax (VAT).

Conversely, when South Africa lowered the CIT rate from 28% to 27% in 2022, no negative impact was recorded.

“If we wanted to raise R28 billion with CIT, the CIT rate would need to increase from 27% to 33%—nine percentage points higher than the OECD average,” Treasury said.

Under these circumstances, there is a very real chance that companies will respond by either reducing their reported profits or they will start to disinvest or freeze investment plans in the country.

Another way they could respond is by passing additional costs onto employees, either through retrenchments or limiting salary increases. The additional costs could also be passed on to consumers.

Ultimately, someone will end up paying for the move, and it is more likely to be South Africa itself, through higher unemployment, lower economic growth, and reduced investment.

The National Treasury stated that the most effective way to increase CIT income is to stimulate economic growth and expand the CIT base, while also enhancing and improving tax compliance.

That said, it doesn’t mean that companies in South Africa won’t face additional tax measures.

The global minimum tax (GMT) has been signed into law in South Africa, which will also increase effective tax rates for large South African and foreign multinational companies operating in the country.

The South African Revenue Service (SARS) is expected to start collecting more CIT revenue through this measure from 2026/27.

“These companies currently contribute more than one-third of total CIT revenue. Due to widespread implementation, no qualifying MNE can escape the minimum level of tax,” the Treasury said.