VAT increase warning for South Africa
Analysts and tax experts say that Finance Minister Enoch Godongwana is betting big on the South African Revenue Service (SARS) resolving his budget problems.
But if the gamble doesn’t pay off, taxpayers should prepare themselves for more tax pain in 2026, including a possible VAT increase.
According to Jordan Mulindi, Tax Attorney at Latita Africa, the budget tabled on 21 May 2025 abandoned the previous VAT increase due to political pressure and public backlash.
This left the National Treasury with a R62 billion loss of revenue over the next three years.
To compensate for this revenue loss, Godongwana cut some spending in the outer years of the MTEF and hiked the fuel levy to raise additional cash.
He also noted that R20 billion will need to be collected through additional tax measures in 2026.
While small adjustments were made to the budget on both sides of book, the real focus was on boosting SARS’ capacity, in the hopes that the taxman can collect more.
The budget allocates R7.5 billion to SARS over the medium term to increase its debt collection effectiveness, which could raise an additional R20 to R50 billion per year.
It will also further modernise SARS’ operations, including targeting illicit trade in tobacco and other products that rob the country of customs, excise and VAT.
The minister said he believed the investment could achieve at least R35 billion, enough to meet the fiscus’ R20 billion shortfall.
However, Mulindi warned that “if this move doesn’t pay off, it begs the question of whether or not a VAT increase could be on the cards next year and how the public would receive it.”
“Minister Godongwana has certainly shown creativity in developing an optimistic budget, promising to increase non-interest expenditure by 5.4% over three years and the primary surplus from 0.8% of GDP to 2.1% in 2027/28, thereby dropping the deficit by R8 billion,” the expert said.
“Realistically, though, South Africans need to prepare for ever-harder economic times as tariffs start to bite and they come under more pressure from SARS to settle their taxes quickly.”
The money has to come from somewhere
Old Mutual Wealth Investment Strategist, Izak Odendaal, expressed a similar view, noting in his budget review that the R20 billion in “unspecified tax hikes” will have to come from somewhere.
He said a VAT hike in 2026 could still be on the table, “but Treasury will be sure to get political buy-in beforehand”.
As with other assessments, Odendaal said it may all come down to SARS. “If SARS improves collection, (tax hikes) might not be necessary,” he said.
For its part, SARS has accepted Treasury’s challenge to find at least R20 billion in extra revenue to avoid resorting to additional tax measures.
The Revenue Service previously noted that between R300 billion and R500 billion in outstanding taxes remain uncollected in the country, and just bringing in 10% of that would cover the shortfall.
For the coming tax season, the group said it would focus on the illicit economy and broaden the country’s tax base by pursuing technological advancements.
SARS has been investing heavily in new tech to help automate and process the vast amounts of data it collects.
These systems have already identified thousands of taxpayers who should be registered for tax but are not, as well as flagging individuals living millionaire lifestyles that don’t match their tax data.
Tax experts have warned that SARS is unlikely to leave any stone unturned as it hunts for the money to meet the targets set by National Treasury.
If it fails, the tax burden will likely carry on to 2026, where a new set of challenges awaits.
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