Tax overview: Increasing tax revenue collection without crippling the economy or taxpayers

Despite these positive strides, it is clear that South Africans will have to navigate financial pressures for a while longer. When delivering the 2024 Medium-Term Budget Policy Statement (MTBPS), the Minister of Finance indicated that economic reforms are starting to yield results, noting improvements in electricity supply, stabilised logistics, and reduced business costs.

A hoped-for increase in the growth forecast for this year did not materialise, with National Treasury penciling in a disappointing expansion of 1,1% in 2024 and an average of 1,8% over the medium term. However, there is hope that the economy might over deliver. Considering the real improvements in the business operating environment and positive investor sentiment, South Africa’s economic outlook is the best it has been for many years.

Setting out the government’s tax and spending plans for the year ahead, Minister Godongwana said his plans were focused on policies that accelerate economic growth, spur job creation and promote a broad improvement in livelihoods of others. The Minister of Finance also indicated during the MTBPS that gross tax revenue for the year is projected to fall R22.3 billion short of February’s estimates, primarily driven by declines in import duties and fuel levies. However, corporate profits are expected to rebound over the medium term, strengthening corporate tax collection alongside ongoing enhancements in tax compliance and administration. With economic growth being strained and the taxpayers’ purse stretched, the South African Revenue Service (SARS) together with National Treasury have to balance increasing tax revenue collection without crippling the economy or taxpayers.

While lower diesel usage by Eskom has contributed to a lower collection in fuel levies, a significant R9 billion diesel rebate was the main contributor. Lower imported value-added tax (VAT) collections were associated with energy supply improvements leading to reduced imports of alternative energy components (e.g. solar panels). In our view, corporate income tax could get a boost before end of February 2025, a seasonally strong month related to company reporting cycles, while personal income tax could jump due to 2024 implementation of the two-pot retirement reform. The carbon tax rate is expected to be 19% higher than the previous Budget, at R236 per ton CO2 equivalent. This is also the last year the basic tax-free threshold, below which the tax is not payable will remain at 60%.  It is expected to drop to 50% in 2026 and will continue to drop by 2.5% until 2030, to introduce a higher effective tax rate for greenhouse gas emissions.  The current tax allowance for taxpayers that have introduced energy efficiencies in their businesses that have resulted in improvements in energy efficiencies terminates at the end of December 2025, it is hoped that Treasury will extend this sunset clause as incentives of this nature will become more important at the carbon tax rate increases.

National Treasury announced a 150% investment allowance for the local manufacture of electric and hydrogen vehicles which will be effective from March 2026.  With the continued importance of the manufacturing sector for the South African economy, it is expected that the budget for the Department of Trade and Industry to support manufacturing incentives and transformation, will be increased over the medium-term expenditure framework to support programmes such as the Automotive Investment Scheme and the Black Industrialist Scheme.

Government’s long‐term tax policy strategy remains focused on broadening the tax base while improving tax compliance and administrative efficiency. The tax strategy described in the budget review is consistent with the message expressed by the SARS Commissioner throughout his tenure, being the government’s focus is on broadening the tax base, improving tax compliance and making the tax administrative system more efficient by ensuring that there are sufficient operational efficiencies, improved facilities and customer service.

Overall, most will be pleased that there are no anticipated increases to corporate tax, income tax and VAT. The so called sin taxes are expected to increase as normal. Also, fuel levy is also likely to increase this time around. However, in so far as individuals are concerned, no inflationary relief is provided through an adjustment in the personal income tax brackets, which is amount to a rate increase. We are keen to see whether SARS will succeed in exceeding the budgeted revenue due to the implementation of the two-pot retirement reform and stimulate economic growth through the increased tax revenue collections without crippling the economy or taxpayers.