It could have been worse

Godongwana: Listens to GNU unhappiness and ups VAT by only 0.5 percentage point

- Ina Opperman

Finance Minister Enoch Godongwana's delayed Budget 2025 speech was a game of give and take, where he trimmed his original plan to increase value-added tax (VAT) by two percentage points to just 0.5 percentage point this year and a similar amount next year.

He did not increase the fuel levy again and left personal income tax brackets and medical tax credits unchanged.

Treasury thoroughly examined alternatives to increasing the VAT rate and weighed up the policy trade-offs involved, including increases in corporate and personal income tax, Godongwana said.

"Increasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth.

"Corporate tax collections declined over the past few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs."

In addition, South Africa's corporate income tax collections are already higher than most of its peer countries, while an increase in personal income tax would reduce taxpayers' incentives to work and save, Godongwana said.

To make up for the lower VAT revenue, personal income tax brackets were not adjusted for inflation, while rebates and medical tax credits will also remain the same. These measures are expected to raise R28 billion in additional revenue in 2025-26 and R14.5 billion in 2026-27.

Tax base