Potential tax hikes could bring financial strain to South Africans this week as Finance Minister Enoch Godongwana prepares to present the 2025 budget on Wednesday, 19 February. Reports suggest that the National Treasury is considering multiple tax hikes to address a massive budget shortfall, potentially exceeding R300 billion.
Possible Tax Increases on the Horizon
According to the Sunday Times, Treasury is evaluating various tax adjustments, including increases in VAT, fuel levies, and sin taxes. A potential wealth tax may also be introduced. While taxpayers are already burdened, the government is seeking ways to close the funding gap amid rising costs and shrinking alternative revenue sources. These potential tax hikes could place further financial strain on both individuals and businesses.
Challenges in Closing the Budget Shortfall
In previous years, South Africa benefited from a global commodities boom and withdrawals from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). However, these options are unavailable in 2025, leaving tax hikes as a likely solution. Additional financial pressures include state-owned enterprise bailouts and the continuation of the Social Relief of Distress (SRD) grant, which is expected to transition into a permanent basic income grant.
VAT Increase Under Consideration
The last VAT hike in South Africa occurred in 2018 when the rate was raised to 15%. While this measure faced criticism, particularly due to its impact on lower-income households, Treasury has reportedly suggested expanding the basket of zero-rated goods to offset some of the financial strain on consumers. Given that many countries have VAT rates between 15% and 20%, further increases remain a possibility. If approved, this could be one of the most significant potential tax hikes affecting all South Africans.
Key Tax Proposals Under Review
As part of the budget discussions, Treasury has been consulting stakeholders on potential tax policy changes. The proposed measures include:
- Expanding the list of VAT zero-rated goods
- Raising corporate income tax to 28%
- Introducing a progressive wealth tax on high-net-worth individuals
- Increasing personal income tax (PIT) on high earners
- Higher inheritance, estate, and luxury import taxes
- Eliminating tax breaks for high-net-worth individuals
- Removing medical tax credits to fund the National Health Insurance (NHI)
- Reviewing and removing ineffective tax incentives
- Increasing the Health Promotion Levy (sugar tax) to the recommended 20%, with annual inflation-related adjustments
Economists Predict Modest Adjustments
Despite discussions on major tax changes, economists remain skeptical about drastic measures in the 2025 budget. Analysts at Nedbank expect increases in sin taxes (alcohol and tobacco) and a hike in the fuel levy, which has remained unchanged since 2022. Additionally, there may be another freeze on adjusting tax brackets, which could erode salary and wage increases. These smaller but steady potential tax hikes will still have an impact on consumers.
While the removal of medical aid tax credits has been proposed to support the NHI, Nedbank believes this change is unlikely to be implemented in 2025.
The Future of the Sugar Tax
One tax increase that appears imminent is the rise of the Health Promotion Levy, commonly known as the sugar tax. Despite opposition from the sugar industry, which argues that the levy has caused significant job losses, the government remains committed to using the tax as a public health measure. Speaking at the World Economic Forum in January, Health Minister Aaron Motsoaledi defended the levy, emphasizing that it aims to reduce sugar consumption and lower the healthcare burden on the state.
Final Thoughts
With the 2025 budget announcement just days away, South Africans are bracing for potential tax hikes that could impact both individuals and businesses. Whether Treasury opts for widespread tax increases or a more measured approach, taxpayers should prepare for possible financial adjustments in the coming months.
