Forvis Mazars SA: Impressions of 2025 National Budget

Contributed by Forvis Mazars in South Africa

One of the biggest issues with the budget every year is that South Africa is not investing in growth-enhancing initiatives with a significant proportion of the budget allocated to paying off debt and social grants. South Africa urgently needs to look at other ways to increase revenue –  than relying on the tax base. Sooner or later, it will reach a saturation point. Growth enhancing structural reforms which support small and medium sized businesses will help to address unemployment and grow the tax base. One of the ways to increase the tax base is to grow the employment rate.

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VAT increase

By Althea Soobyah, national head of Tax, Forvis Mazars in South Africa

Finance Minister Enoch Godongwana announced that VAT will increase by 0.5% from 1 May 2025 with a further 0.5% increase from 1 April 2026 during his annual national budget announcement. National Treasury believes that VAT is an efficient source of revenue. This latest increase will add a net R11.5-billion in 2025/6. The last time VAT was raised was in 2018 when it increased from 14% to 15%. Three-quarters of VAT (75%) is paid by individuals in the top four expenditure deciles.

Government is expanding the basket of zero-rated items and making no changes to the fuel levy to support lower income households and mitigate the impact of a higher VAT rate.

A 1% VAT increase with the 0.5% increase this year and another 0.5% in 2026 is palatable, recognising that government can not over burden the consumer with a full 1% immediately.

Consumption of retail at the upper end will feel the biggest impact of a higher VAT rate. South Africa still performs relatively well compared to other emerging markets when it comes to our VAT rate, on a par or lower than the global standard.

Personal income tax rates

Personal income tax is the biggest contributor to the national budget. The 2025 national budget did not include any inflationary adjustments to personal income tax brackets or to medical credits. One of the biggest challenges for the fiscus is that 32.7% of personal income tax is paid by 224 959 top earning individuals with all personal income tax paid by only 1.3 million individuals. Although 6.5 million individuals are registered for tax, they fall below the tax threshold. Bracket creep will add around R19.5-billion to the fiscus.

SIN tax  

By Elmien Theron, associate director, Forvis Mazars in South Africa

As expected, above inflation sin tax increases on alcohol (6.75%), tobacco and cigarettes (4.75%) and cigars (6.75%) were announced.

In addition to raising additional taxes, alcohol taxes are aimed at reducing road fatalities. Notably, the only alcohol not facing increased tax is traditional beer, although it has a much higher alcohol content. The question that needs to be asked is, how effective a higher alcohol tax is on reducing road fatalities.

Corporate income

By Etienne Louw, director, Tax Consulting, Forvis Mazars in South Africa

There is little for the corporate sector to get excited about in the budget. A VAT increase affects everyone, including the corporate sector, despite government mitigating the adverse effects for lower-income households, including through above-inflation increases to social grants, not increasing the general fuel levy, and expanding the list of foods zero rated for VAT. Ostensibly it may have been better to have a 1% immediate increase as it is administratively burdensome spreading it over two years – albeit to soften the blow.

Although Godongwana said the corporate tax rate would remain unchanged, South Africa ranks 13th of 123 reporting countries when corporate tax is taken as a percentage of GDP, so the country is very much on the high end. Despite an increase in collections from the corporate sector, there was a disturbing 28% fall in receipts from the mining sector – one of the country’s biggest GDP contributors.

Furthermore, there is no ‘reining in’ of government spending. Consolidated government spending is budgeted to increase at an annual above-inflation average of 5.6%, from R2.4-trillion in 2024/25 to R2.83-trillion in 2027/28. Nonetheless, economic development is the fastest growing function, driven by higher capital investment, followed by debt-service costs.

National Treasury anticipates that withdrawals from the two-pot system will increase in the coming year, having over-recovered in 2024/25. This may have an impact on employees.

There will be no inflationary adjustments made to any tax brackets in personal income tax (PIT), meaning bracket creep will increase tax revenue with salary increases putting employees into a high tax bracket. The government is squeezing the consumer with three years of bracket creep now.

Growth is projected at 1.9% in 2025, easing to 1.8% in both 2026 and 2027, while the debt to GDP ratio is 76.2% in 2025/26 with debt service costs (interest) at 5.3% in 2025/26. Both measures are up 0.1% from 2024/5.

An important component of the budget is investment in the capacity of SARS to improve enforcement and increase the number of people paying tax. It will be interesting to see where SARS focuses its attention through its AI and data analytics tools for improved compliance and tax collection. The focus would best be addressed to improving administration around unregistered taxpayers. This is where the biggest improvement in the fiscal position could be made – paling the announced of VAT increases into insignificance.

SARS funding

By Robin Galloway, senior manager, Forvis Mazars in South Africa

The long-standing call to properly fund and capacitate SARS which collects more than 90% of government revenue but remains underfunded is notable. The SARS commissioner says that more than R800-billion is lost due to unpaid tax debts, overdue tax returns and uncollected tax inventory. SARS should have an annual budget of approximately R18-billion but last year was allocated just R12.4-billion – leaving a funding gap of R5.6-billion, or over 30%.

Further to the R3.5-billion that was allocated to SARS in the 2024 Mid Term Budget Speech, to modernise its operations and enhance taxpayer services, the 2025 National Budget allocated an additional R4-billion to SARS over the next three years, resulting in a total allocation of R7.5-billion.

An adequately funded SARS is critical to facilitate improved revenue collection. This additional allocation will enable SARS to collect tax that is already due to the fiscus as opposed to the fiscus relying on various forms of tax hikes every year to fund its fiscal deficit. This is a positive development in our view and is particularly important given South Africa’s lethargic economic growth.