The National Treasury says its proposed tax increase is aimed at raising R58 billion in additional revenue in the 2025/26 financial year.
The tax proposals are contained in the budget that was not formally tabled by Finance Minister Enoch Godongwana in Parliament on Wednesday after parties in the Government of National Unity (GNU) did not reach a consensus.
Godongwana will now table the budget on March 12.
Scrutiny of the proposed 2025 budget indicates that the National Treasury is convinced that the tax proposals, which will be implemented on April 1 if adopted, will provide relief to poor households, above-inflation increases in social grants, additional VAT zero-rating of essential food items and no changes to the fuel levy.
In a foreword to the budget review document, director-general Duncan Pieterse said the government has decided to raise VAT by 2% to 17% in light of new and persistent spending pressures.
“This measure enables additional funding in several key areas, including extending early childhood development coverage; hiring more teachers, doctors, and other critical frontline personnel; and rebuilding the commuter rail system. It also covers the costs of the Covid-19 social relief of distress grant and accommodates the higher-than-expected public service wage increase.”
In his Budget speech that was not delivered on Wednesday, Godongwana said they thoroughly analysed alternatives, including corporate and personal income tax increases, but these would generate less revenue and harm job creation.
“Taking on more debt, given our junk credit rating, would increase interest payments and risk further downgrades. The VAT increase is the most efficient, broad-based solution, aligning with global standards while ensuring social protections and infrastructure investments,” he said.
Godongwana said they planned implementing relief measures, including expanding VAT zero-rated food items such as tinned vegetables, dairy liquid blends, and variety meats as well as extending the fuel levy relief for another year and this would save consumers R4 billion, as well as providing above-inflation social grant increases and adjusting personal income tax brackets to protect lower-income earners.
“These tax measures will generate R58 billion in additional revenue for 2025/26 while balancing fiscal responsibility and social protection,” he said.
The National Treasury states that the VAT system currently zero rated 21 essential food items in an effort to make them more affordable for poorer households.
“Government proposes to extend the list of zero rated basic foods to mitigate the effect of the VAT rate increase. From 1 April 2025, zero rating will be extended to include variety meats from sheep, poultry, goats, swine and bovine animals; specific cuts such as heads, feet, bones and tongues; dairy liquid blend; and tinned and bottled vegetables. This decision considered the risk of tax base erosion and the distributional impact of the items identified.”
According to the budget document, the National Treasury acknowledged the tax increase will place greater pressure on households.
However, it insisted that additional spending pressures will have to be funded either through additional revenue increases or expenditure reductions or reprioritisations, which may include cutting non-performing programmes.
In backing the tax proposals, the National Treasury said tax revenue was expected to increase from R2.03 trillion in 2025/26 to R2.32 trillion in 2027/28 as the tax revenue for 2024-25 was expected to be R1.84 trillion – below the expected R19.3 billion outlined in the 2024 budget.
It said the government remained committed to broadening the tax base and improving tax administration to support sustainable revenue collection and economic growth.
“The buoyancy of tax revenue for a given level of economic growth is expected to be higher over the medium term, mainly due to the policy measures implemented from 2025/26 and higher personal income tax collections.”
