2025 budget speech predictions
South Africa's Minister of Finance, Enoch Godongwana will present the 2025 budget speech on Wednesday, 19 February 2025. Since the last budget, the South African economy has strengthened in response to an unprecedented 300 days without loadshedding. The improved confidence also follows the formation of the government of national unity ("GNU") in June 2024, better-than-expected inflation outcomes and reduced borrowing costs. In terms of the medium-term budget policy statement ("MTBPS"), the GNU's main focus areas include achieving inclusive economic growth and job creation to address South Africa's prolonged economic and fiscal weakness, with a focus on prevailing electricity shortages, logistics challenges and declining capital investment which have historically contributed to low growth. However, following the MTBPS, the revenue estimate for 2024/2025 was revised downwards by ZAR22 billion.
While personal income tax collections are expected to underperform, due to weak private-sector employment and wage rates, corporate tax and domestic VAT collections are expected to exceed 2024 budget projections. The South African Revenue Service ("SARS") announced its strategic objectives in 2024 which include making it easier for taxpayers to comply with their obligations, detecting non-compliance, modernising its digital online systems and an increased use of data and artificial intelligence to boost compliance. According to SARS' reports, the SARS compliance programme contributed ZAR260.5 billion for the 2023/2024 fiscal year, a 25.5% increase from the prior year. The compliance programme is expected to yield a similar increase in the 2024/2025 fiscal year.
Personal income tax and marginal tax rates
No significant announcements on an increase in personal income tax will be made with the highest marginal tax rate for individual taxpayers remaining unchanged at 45%. However, in view of the fact that no adjustment was made to the personal income tax brackets in last year's Budget, it is to be hoped that there will be a fiscal drag adjustment to counteract the impact of inflation on taxable income in the 2025 Budget. However, even if this adjustment is made, as in previous years, this is unlikely to be the full inflation adjustment to allow for bracket creep, especially for taxpayers in the higher tax brackets, and some of the additional tax required to be collected will be recovered through this process.
It is also anticipated that primary, secondary and tertiary rebates will be increased.
Wealth tax
SARS has collected information on high-net-worth individuals holding assets in excess of ZAR50 million, which is under consideration by National Treasury to determine whether a wealth tax may be imposed on such individuals. The focus has been on South Africa's personal income tax system that taxes returns on wealth, including dividends, capital gains, interest, and rentals.
An increase in the maximum marginal personal income tax rate is unlikely to generate significant additional revenue and may result in the emigration of wealthy taxpayers, which would then hurt the tax base as a whole. There are also additional complexities associated with the imposition of a wealth tax, especially in the context of assets held in trusts.
It is anticipated that the outcome of National Treasury's analysis and an update on whether any additional wealth taxes may be imposed in the future will be announced in the 2025 budget.
Medical tax credits
The removal of medical tax credits has been considered for a couple of years and is often presented as a method to raise additional revenue to fund the National Health Insurance ("NHI") scheme. The removal of medical tax credits in the 2025 budget may be premature as it is anticipated that it will take a number of years before NHI is fully implemented, however, the NHI scheme will likely receive a budget allocation now that it has been promulgated into law.
Corporate income tax rate
During the 2022 budget, when it was announced that the corporate income tax rate was reduced from 28% to 27% for companies with tax years ended after 31 March 2023 (which reduction was coupled with the introduction of the limitation of the set off of balance of assessed losses brought forward from prior years of assessment), the Minister announced that this rate would continue to decline over time.
While companies continue to contribute to approximately 20% of total tax revenue, the third largest contributor to total tax revenue, it is unlikely that any downward changes in corporate income tax rates will be announced.
South Africa's energy crisis
South Africa had more than 300 days free of loadshedding in 2024. The stabilisation of the electricity supply has improved the overall investment climate and economic outlook for South Africa, although it has been acknowledged that the country's electricity system remains vulnerable.
The permanent and enhanced renewable energy tax incentives have played a significant role in reducing businesses' reliance on the grid, particularly for those that could afford to install renewable energy facilities. The enhanced renewable energy incentive for businesses comes to an end on 28 February 2025 and is unlikely to be extended. However, the permanent renewable energy tax incentive may be extended to green hydrogen production.
Value-added tax (VAT)
Import VAT collections contracted by 4.5% relative to the same period in 2023/24 as stabilising power supply led to lower imports of energy-related components.
While an increase in the VAT rate may provide short-term government revenue to assist in addressing the budget deficit, it could negatively impact overall economic growth and would disproportionally affect lower-income households. We are also unlikely to see a VAT rate increase considering the GNU's strategic priorities to reduce poverty and target the high cost of living in South Africa.
In line with the government's prior commitments, especially in the context of the VAT rate increase that came into effect in April 2018, as well as repeated announcements by the new GNU, it is expected that the basket of essential food items that are zero-rated will be expanded to support poor South Africans amid rising food prices.
Excise
Customs duty collections grew moderately compared to prior periods, but are expected to fall short of 2024 budget estimates in line with weaker import growth.
All excise rates, for beer, alcohol and tobacco will increase, in line with core inflation.
Several taxpayers have raised concerns regarding the timing of excise rate adjustments and the administrative burden and compliance complexities it creates. The current system is such that the excise duty rate adjustments are effective from 14h00 on the day of the Budget as the Minister of Finance makes the Budget Speech.
Before that time, taxpayers who are required to implement and comply with the rate adjustments do not know the exact level of adjustment in excise rates prior to the announcement. Taxpayers are also expected to keep two sets of records for the month of February to account for before and after the rate adjustment.
To address these challenges, an implementation date of either 1 March or 1 April for excise duty rates adjustments may possibly be announced.
Fuel levy and road accident fund
Net fuel levy collections contracted compared to the same period in 2023/24 as a consequence of a sharp decline in the demand for fuel.
Inflationary increases are still expected as the fuel levy remains a significant contributor to revenue collected and is easy to collect, especially as consumers are already accustomed to high fuel prices.
SRD grant
The social relief of distress ("SRD") grant is expected to come to an end in March 2025, but given that it has consistently been extended since the end of the pandemic, it is likely that this cut-off will again be extended.
In the 2024 budget, National Treasury also planned for budgetary spending in 2026 and 2027 to account for further extensions to the grant. The SRD grant was allocated ZAR33.6 billion in 2024/25 during the 2024 budget, with provisional allocations of ZAR35.2 billion and ZAR36.8 billion for the 2025/26 and 2026/27 financial years.
Carbon tax
National Treasury released a Discussion Paper on Phase Two of the South African Carbon Tax for public comment on 13 November 2024. The Discussion Paper sets out the proposed changes to the tax-free allowances to be phased in between 2026 and 2035. The Discussion Paper proposes reductions in the maximum tax-free allowances from 2026 to 2035 but the carbon tax rate, which will increase from its current rate of ZAR236 to ZAR462 per tonne of carbon dioxide equivalent in 2030, remains constant at ZAR462 for the period 2031 to 2035. As a result, the increases in the effective carbon tax rates from 2031 to 2025 are understated.
A stakeholder consultation workshop was held on 16 January 2025 to discuss the comments on the Discussion Paper. It is anticipated that announcements regarding the proposed amendments to the carbon tax regime will be made in the 2025 budget speech.
Two-pot retirement system
SARS has approved over 2.4 million applications for tax directives for withdrawals from the savings component of retirement funds in terms of the two-pot system since September 2024 and a total gross lump sum of over ZAR43 billion was paid out by the end of January. As tax is imposed on the withdrawals at a marginal tax rate ranging between 18% and 45%, the introduction of the two-pot retirement system has contributed significantly to revenue collections in 2024/25 as total revenue from savings withdrawal benefits is expected to be between ZAR11 billion and ZAR12 billion. This is compared with the 2024 Budget estimate that ZAR5 billion was likely to be raised in 2024/25 due to tax collected as fund members accessed once-off withdrawals. However, since there was an initial once-off injection of "seed capital" into members' savings component of their retirement funds in September 2024, the tax collected from savings withdrawal benefits may well be lower in subsequent years. It is unlikely that any changes to this regime will be announced.
Taxation of alcoholic beverages
Tax on sugar, carbon, tobacco, and alcoholic beverages will be adjusted upwards as has become the norm.
National Treasury has also proposed increasing taxes on alcohol to curb excessive consumption by making alcohol unaffordable to some. This is unlikely to be effective and could increase the black market, exposing South African consumers to buying alcohol that does not meet regulations. On this basis, it is unlikely that these taxes will be implemented.
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