South Africa's National Budget: No personal tax increases and inflation relief

Taxpayers will breathe a sigh of relief from this year's National Budget because not only were there no personal tax increases announced, but the government scrapped plans it made last year to raise an additional R20 billion through tax this year.

While smokers, drinkers, and drivers will pay the by-now usual inflation-linked duty increases, the windfalls on personal income tax and from the government spending R30,7bn to remove fiscal drag arise from better-than-expected tax revenues, improved revenue collection, slightly lower debt service costs, and because the government still expects to meet its fiscal targets over the medium term.

Government's tax revenue for 2025/26 has been revised upwards by R21,3bn when compared with the 2025 Budget, Finance Minister Enoch Godongwana said in the Budget.

The Budget deficit and primary surplus for 2025/26 improved slightly due to improved revenue collection, offset by increased non-interest expenditure. Debt-service costs were revised down by R10,6bn over the medium term, due to improved bond yields, an appreciating rand, and lower inflation and interest rates.

The tax-to-GDP ratio increases slightly to 25,9 percent in 2025/26 from 25,1 percent in 2024/25.

Further good news is that personal income tax brackets and medical tax credits are being adjusted for inflation, this after taxpayers have had to compensate for fiscal drag over the past two years because there had been no inflationary relief, which the government did not grant due to fiscal constraints.

Various tax thresholds and limits will also be adjusted for the impact of inflation, to assist small businesses and encourage savings.

National Treasury says that over the past three years, the tax system has remained resilient, despite the weak economy.

"Tax buoyancies continue to be high despite the low nominal GDP. The stronger fiscal outlook presented in the 2025 Medium Term Budget Policy Statement means key metrics remain in line with the fiscal strategy. For this reason, the government has decided to withdraw previously announced tax increases for the 2026 Budget and to provide inflation relief for consumers."

Tax revenue for the 2026/27 financial year comprises R844,8bn in personal income tax, R521,4bn VAT revenue, R364,3bn from corporate income tax, R159,4bn customs and excise, R104,9bn fuel levies, and R132,3bn from other tax sources.

Consumers, however, did not escape an inflationary increase in so-called "sin taxes" - the government raises these each year because there is a moral underpinning to those taxes in that alcohol and tobacco products are deemed bad for one's health.

Examples of excise tax increases include a rise of 77 cents per pack of 20 cigarettes. The tax on malted beer rises by 8 cents per 340ml can, on fortified wine the tax rises by 26 cents per 750ml bottle, on pipe tobacco it rises by 28 cents per 25 grams, while for spirits, the tax rises by R3,20 per 750ml bottle. The excise duty on sparkling wine is increased by R19,68 per litre.

Because the fuel price is deemed by National Treasury to have remained subdued, from April 1, the general fuel levy will be increased by less than inflation to R4,10 per litre of petrol, from R4,01, and to R3,93 per litre of diesel, from R3,85 previously.

The Road Accident Fund was increased by 7 cents per litre to R2,25 per litre, in line with expected inflation, while customs duties and excise levies are unchanged. The Carbon Fuel Levy will increase by 19 cents per litre of 93 octane petrol and 23 cents per litre of diesel. The Carbon tax increased to R308 per ton of carbon dioxide equivalent on January 1, 2026, from R236.

The amount an individual below the age of 65 can earn before paying tax is R99,000, for individuals aged between 65 to 74 it is R153,250, while for those aged 75 and over, the threshold is R171,300. The tax rebates for all individuals are R17,820, for individuals aged 65 and over it is R9,765, and for people aged 75 and over, it is R3,249.

Tax limits adjusted from March 1, 2026, include the annual contribution to tax-free investment, which was adjusted to R46,000 from R36,000, the annual deduction for contributions to retirement funds adjusted to R430,000 from R350,000, the annual exclusion of capital gains or losses that was raised to R50,000 from R40,000, the exclusion of capital gain on loss or disposal of primary residence to R3 million from R2 million, while the compulsory VAT registration limit was raised to R2.3 million from R1 million (this change takes effect from April 1, 2026).

National Treasury notes that both personal and corporate income tax contributions to total revenue are higher in South Africa than the average across Organisation for Economic Co-operation and Development (OECD) countries. South Africa has become very reliant on these two taxes, which accounted for about 55% of total tax revenue in 2023.

A 2018 VAT panel report also estimated that individuals in the top four income deciles accounted for 75% of VAT revenue, even though it is a broad-based tax.

"Beyond a certain point, increases in tax rates may not generate additional revenue and are detrimental to economic growth. Ultimately, the best option is to increase revenue by broadening the tax base and growing the economy," National Treasury said

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