Tax Guide 2024/2025.
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Review of the 2025 Budget Speech.
The 2025 Budget Speech addressed the economic stagnation of the past decade, with GDP growth averaging less than 2%. In 2024, the economy grew by only 0.6%, and medium-term projections estimate an average growth of 1.8%. The speech emphasized the need for faster, inclusive economic growth to meet developmental goals.
The budget aims to achieve macroeconomic stability through sound fiscal policy, structural reforms, and infrastructure investment. Key fiscal targets include achieving a budget primary surplus of 0.5% of GDP in 2024/25, growing to 0.9% in 2025/26, stabilizing government debt at 76.2% of GDP by 2025/26, and reducing the consolidated budget deficit to 3.5% by 2027/28. The final phase of Eskom’s debt relief package has been simplified, resulting in a saving of about R20 billion for the government. This contributes to the improved fiscal position and supports the goal of stabilizing debt service costs.
The budget proposes a growth strategy anchored on four pillars: maintaining macroeconomic stability, implementing structural reforms, improving state capability, and accelerating infrastructure investment. Public infrastructure spending over the next three years will exceed R1 trillion, focusing on transport and logistics, energy infrastructure, and water and sanitation.
To address spending pressures in health, education, transport, and security, the government proposes increasing the VAT rate by 1 percentage point over two years, reaching 16% by 2026/27, and no inflationary adjustments to personal income tax brackets, rebates, and medical tax credits. These measures are expected to raise R28 billion in 2025/26 and R14.5 billion in 2026/27.
The budget includes significant allocations for social grants, with increases to the old age and disability grants, Child Support Grant, and foster care grant. The COVID-19 Social Relief of Distress (SRD) grant will be extended by a year, with R35.2 billion allocated for this purpose.
A three-year wage agreement has been reached, costing an additional R7.3 billion in 2025/26, R7.8 billion in 2026/27, and R8.2 billion in 2027/28. An early retirement initiative aims to attract younger employees into the public service, with expected savings averaging R7.1 billion per year.
The 2025 Budget Speech reflects the government’s commitment to fostering economic growth, improving public services, and reducing inequality through targeted fiscal measures and strategic investments. The proposed budget aims to balance fiscal discipline with the need to address pressing social and developmental priorities, ensuring a sustainable and prosperous future for South Africa.
South Africa to Increase VAT Rate in 2025.
In a significant move to boost revenue, the South African government has announced a two-phase increase in the Value Added Tax (VAT) rate. The first increase of 0.5 percentage points will take effect on 1 May 2025, followed by another 0.5 percentage point increase on 1 April 2026.
This decision comes after careful consideration of the potential contributions of various tax instruments, with VAT being identified as an efficient and broad-based source of revenue.
Currently, South Africa’s VAT rate is relatively low compared to peer countries. VAT, being a tax on consumption, will affect all households through price increases. However, higher-income households, which consume more, will bear the brunt of the increase. Over 75% of VAT revenue is derived from households in the top four expenditure deciles, which corresponds to those spending R118,000 or more per year.
The government believes that increasing taxes on consumption through a higher VAT rate will have the least detrimental effect on economic growth and employment over the medium term, compared to increases in personal or corporate income tax rates. Raising personal income tax rates has proven inefficient, as taxpayers adjust to reduce their liabilities, and higher rates could reduce the incentive to work and save. Similarly, increasing corporate tax rates could impede competitiveness and generate less revenue than VAT.
To mitigate the impact of the VAT rate increase on lower-income households, the government proposes to extend the list of zero-rated basic foods. From 1 May 2025, zero rating will include edible offal of sheep, poultry, goats, swine, and bovine animals, specific cuts such as heads, feet, bones, and tongues, dairy liquid blend, and tinned or canned vegetables. While zero rating is a blunt tool, the 2022/23 Income and Expenditure Survey shows high consumption of these items in the lowest four expenditure deciles. These measures are estimated to cost the government about R2 billion in forgone revenue.
South Africa Increases Carbon Tax to Combat Climate Change.
The government has also published a discussion paper on phase 2 of the carbon tax, inviting public comment. The paper proposes several measures to reduce tax-free allowances and strengthen the effective carbon tax rate to encourage behavior change. Key proposals include extending the section 12L energy-efficiency tax incentive and the commitment to electricity price neutrality until December 31, 2030.
To protect consumers from higher electricity prices, the government plans to remove the electricity generation levy from January 1, 2026, and apply the carbon tax on electricity emissions. Electricity generators will be allowed to deduct a portion of the renewable energy premium from their carbon tax liability.
Other notable proposals include increasing the carbon offset allowance by 5 percentage points from January 1, 2026, and retaining the 30 percent trade-intensity threshold used to determine the trade exposure allowance. The basic tax-free allowance will be maintained until December 31, 2030, with consultations planned to explore options for reducing it from January 1, 20311.
The government also aims to introduce a greenhouse gas emission intensity benchmark for the electricity sector from January 1, 2026, and extend the utilization period for carbon offsets generated from projects approved before the introduction of the carbon tax until December 31, 2025.
These measures reflect South Africa’s commitment to addressing climate change and promoting sustainable development.
Understanding the South African Budget Process: From Proposal to Parliamentary Ratification.
The Budget Speech
The journey starts with the Budget Speech, delivered by the Minister of Finance to the National Assembly. This speech outlines the allocation of financial resources to the national government’s priorities, as articulated by the President in the State of the Nation Address (SONA). The Budget Speech provides an update on the state of the economy, public finances, and progress on government objectives. It also details how the Treasury intends to fund commitments made in the SONA for the financial year.
Parliamentary Scrutiny and Approval (March – May)
Following the Budget Speech, Parliament, through its committees, scrutinizes the allocation of funds to ensure they meet the priorities identified in the SONA. This scrutiny is an ongoing process, empowered by the Money Bills Amendment Procedure and Related Matters Act (Act 9 of 2009), which allows Parliament to amend the fiscal framework, appropriations, and division of revenue.
The fiscal framework sets out overall estimates of revenue collection, expenditure, borrowing, interest, and debt servicing. It provides a roadmap for the government’s specific proposals about the Division of Revenue Bill, which allocates funds to the national, provincial, and local spheres of government. It also motivates the Appropriation Bill, which allocates funds to different government departments and state entities.
Committee Deliberations and Reports (April – June)
Various entities present their motivations to Parliament, explaining why the allocated funds are necessary. Parliamentary committees then deliberate on these proposed allocations and present reports to the National Assembly for approval. These deliberations occur in separate sittings known as budget votes, focusing on specific departments and their entities.
Final Approval and Implementation (June – July)
Once the National Assembly approves the Division of Revenue Bill, it considers the Appropriation Bill and votes on each departmental allocation. After these approvals, the budget is ratified, and the allocated funds can be implemented as planned.
Continuous Oversight (Ongoing)
Parliament’s responsibility does not end with the approval of the budget. It continues to oversee government spending to ensure it remains aligned with South Africa’s policy goals and objectives. This ongoing oversight is crucial for good governance and accountability.
In conclusion, the South African budget process is a comprehensive and continuous cycle that ensures government spending is effectively managed and aligned with national priorities. From the Budget Speech to parliamentary ratification, each step is designed to promote transparency, accountability, and good governance.
Sincerely,
