BUDGET 2026 | R20bn tax relief as proposed increase is dropped

The government has decided to withdraw the R20bn in tax increases that were provisionally included in the 2025 medium-term budget policy statement (MTBPS) because of higher-than-expected net VAT, corporate income tax and dividends tax collections. Finance minister Enoch Godongwana said the improving fiscal position allows enough room to withdraw the proposed tax increases without putting fiscal sustainability or economic activity at risk. The South African Revenue Service (Sars) will receive an additional R7bn allocation over the medium-term expenditure period, which will partly be used to hire more tax debt collectors.

Sars and the National Treasury also implemented monthly reporting on debt collections to enhance transparency and track progress. “Total outstanding tax debt stood at R646bn on January 31 2026, of which R518.2bn is undisputed. “Recent actions by Sars, including enhancing collaboration with banks and hiring additional legal professionals to pursue civil judgments, are expected to increase collections, but it is unlikely that the targets will be met.

Consequently, the fiscal framework does not include additional revenue from debt collections.” Tax revenue over the next few years is now expected to be R57.2bn lower than projected in the 2025 MTBPS. This is mainly because the planned tax increases have been cancelled. Some improvements in tax collections have helped make up for the withdrawn R20bn in tax increases.

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Though VAT refunds are expected to be lower, weaker import VAT will reduce overall VAT collections. However, stronger collections from company tax, personal income tax and fuel levies are expected to more than make up for the lower VAT and customs duty collections compared with the 2025 MTBPS. The tax-to-GDP ratio is expected to rise to 26.2% by 2028/29 as the economy grows.

Total tax revenue is projected to increase by 6% in 2026/27; 5.7% in 2027/28; and 5.7% in 2028/29. Revenue is expected to grow from R2.01-trillion in 2025/26 to R2.38-trillion in 2028/29. “Ilicit trade represents a major threat to these hard-won gains.

It threatens our economy, endangers consumers and robs the fiscus of billions in revenue,” Godongwana said. “The recent announcement by a major tobacco producer that it will close its local operations is a stark reminder of the impact of illicit trade on jobs and the overall economy. The sophisticated and organised nature of illicit operations demands an intensified effort to curb this trade, secure prosecutions and dismantle its supply chains.

“Sars has already intensified its efforts. It will also continue its joint operations with the Border Management Agency, the SAPS and the defence force to stop the illicit trade in tobacco.”

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