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Finance Minister Enoch Godongwana presented the 2025 Budget Speech on 12 March 2025.
The Budget is normally tabled and presented in February, however, there was a delay due to the failed consensus on the initial proposals by the Government of National Unity. This was primarily due to a disagreement over the initial proposed level of increase in the VAT rate.
The budget that was presented still proposes an increase in the VAT rate. However, the smaller increase of 0.5% is effective from 1 May 2025, with a further 0.5% increase effective on 1 April 2026. This will eventually bring the VAT rate up to 16%.
National Treasury is required to identify mechanisms to increase revenue collection and grow the economy to meet the goals of redistribution and redress structural transformation. Economic growth has stagnated over the last decade, with growth of only 0.6% in 2024. The latest Budget is intended to achieve a balanced fiscal strategy, stabilise debt and ultimately reduce debt-service costs.
A number of the tax proposals in the latest Budget are intended to assist the National Treasury in the collection of revenue to achieve its intentions.
2025 Tax proposals
The following is a summary of selected tax proposals included in the 2025 Budget:
- Increase in the VAT rate – VAT is held to be an efficient source of revenue. It is broad-based and has a simple design with minimal exceptions. With effect from 1 May 2025, the VAT rate will be increased by 0.5%. This will be followed by a further increase of another 0.5% effective from 1 April 2026.
- Further VAT zero rating – Essential food items are zero-rated to make them more affordable for lower-income households. The government is proposing to extend the list of zero-rated basic foods to limit the effect of the increases in the VAT rate. Effective from 1 May 2025, VAT zero rating will be extended to include edible offal of sheep, poultry, goats, swine and bovine animals; specific cuts such as heads, feet, bones and tongues; dairy liquid blends; and tinned or canned vegetables.
- Personal income tax – The income tax brackets applicable to individuals will not be subject to any adjustments. Not adjusting the tax brackets for the effects of inflation will result in increased revenue collection.
- Medical tax credits – The medical tax credits will remain at the current value of R364 each per month for the first two beneficiaries and at R264 per each per month for the remaining beneficiaries.
- Adjustment of transfer duty – The monetary thresholds for transfer duties will be adjusted by 10% to compensate for inflation. This will be effective from 1 April 2025.
- Employment tax incentive (ETI) – It is proposed to maintain the current values of the ETI. As of 1 April 2025, the formula to calculate the incentive and the income bands will be adjusted. The maximum value of R1 500 per month will apply to employees earning between R2 500 and R5 500 monthly (previously R2 000 and R4 500 previously). The incentive value will decline as wages increase, tapering to zero at a monthly income of R7 500 (previously R6 500).
- Extending the urban development zone incentive – The sunset date of the incentive will be extended to 31 March 2030. This is intended to allow for certainty and planning for investors and adequate time to consult with municipalities.
- Cross-border tax treatment of retirement funds – Current treatment of cross-border retirement funds may result in double non-taxation. It is proposed that changes be made to the rules that currently exempt lump sums, pensions and annuities received by South African residents from foreign retirement funds for previous employment outside South Africa, with amendments in the current legislative cycle.
- Carbon tax - The carbon tax plays an integral role in South Africa’s climate change mitigation efforts. It increased from R190 to R236 per tonne of carbon dioxide equivalent (tCO2e) from 1 January 2025. On 2 April 2025, the carbon fuel levy will increase by 3c/litre to 14c/litre for petrol and 17c/litre for diesel, as required under the Carbon Tax Act (2019). The carbon tax cost recovery quantum for the liquid fuels sector increased from 0.69c/litre to 0.99c/litre from 1 January 2025 to align with the increase of the headline carbon tax rate.
A discussion paper was published in November 2024 on phase 2 of the carbon tax. Subsequent to stakeholder comments, a number of further proposals are being proposed.
Health promotion levy – The Government has proposed to cancel any increase in the levy to allow the sugar industry more time to restructure in response to regional competition.
Ad valorem excise duties on smartphones – The duties on smart phones are currently charged at a flat rate of 9%. To enhance smartphone affordability at the lower end of the price spectrum and support efforts to promote digital inclusion for low-income households, the government proposes that as of 1 April 2025, this duty rate be applied only to smartphones with a price paid greater than R2 500 at the time of export to South Africa.
Fuel taxes and levies - The general fuel levy has remained unchanged since 2022. The government proposes to keep the general fuel levy unchanged for 2025/26, resulting in tax relief of about R4 billion. The Road Accident Fund (RAF) levy and the customs and excise levy will also remain unchanged.
Adjustment to the diesel refund for the primary sector - To support South Africa’s international competitiveness, tax regulations enable farming, mining and forestry businesses to qualify for a refund of the general fuel levy and RAF levy for 80 per cent of eligible diesel fuel purchases. The government proposes to align with the original policy intent and apply the refund for all eligible diesel purchases declared to SARS, effective from 1 April 2026. The proposal will simplify the administration of the diesel refund system, costing the fiscus an estimated R1 billion from 2026/27.
Collective Investment Schemes (CIS) - A discussion paper was issued covering three main tax proposals for the taxation of CIS structures, namely to make CIS fully tax transparent, provide a threshold for CIS and remove hedge funds from the framework. The government acknowledges the administrative concerns raised for the fully tax-transparent proposal and confirms that it does not intend to tax all CIS returns as revenue. Consultations will continue in 2025.
Definition of “remuneration proxy” - It is proposed that the definition of “remuneration proxy” be amended to include amounts exempted under section 10(1)(o)(ii) of the Tax Act. This is to counter unintended benefits that may arise for certain employees who, in the previous year of assessment, qualified for and claimed an exemption for foreign employment income.
Closing loopholes in the ring-fencing of assessed losses – At present, the ring-fencing provisions in Section 20A only apply to taxpayers at the top marginal tax bracket. It is proposed that the threshold at which ring-fencing rules apply be reviewed and amended.
Reinstating the exemption for child maintenance payments funded from after-tax income - These payments are intended to fulfil the fundamental obligation of supporting a child. Therefore, taxing them in the hands of the recipient requires reconsideration to better align with the government’s social policy objectives. It is proposed that amendments be made to exclude child maintenance payments from the recipient’s taxable income to restore the original policy intent.
Refining the definition of hybrid equity instrument - It is proposed that the definition of “hybrid equity instrument” be revised to address the circumvention of anti-avoidance measures that may result in the non-application of anti-avoidance rules on preference shares.
Clarifying the rollover relief for listed shares in an asset-for-share transaction - It is proposed that the legislation be amended to align with the original policy intent and that the special rollover regime for listed shares be limited to shareholders holding less than 20 per cent of the equity shares in the target company before the transaction.
Reviewing asset-for-share and amalgamations transactions involving collective investment schemes - Transferring shares to a CIS without tax implications has allowed for unintended tax avoidance during changes of shareholdings in listed companies, as the realised gains in the shares are not taxed on transfer. The realised gains are also not taxed when the CIS disposes of the shares as part of a corporate restructuring. It is proposed that these provisions relating to asset-for-share transactions and amalgamations transactions be reviewed.
CFC rules and comparable tax exemption – There is an exemption in the CFC rules whereby the income of the CFC is not imputed under the CFC rules if the tax paid in the foreign country is at least 67.5% of what they would have paid in SA had they been a SA tax resident. However, this comparable tax exemption does not consider tax systems of countries that allow a refund to certain shareholders of a foreign company for tax paid by the company declaring the dividend.
It is proposed that a tax refund to a shareholder should also be taken into account in applying the comparable tax exemption. Taxation of trusts and their beneficiaries – Amendments passed in 2023 related to the taxation of trusts and their beneficiaries limit the flow-through principle to resident beneficiaries. It has come to the government’s attention that the interaction between sections 7 and 25B of the Income Tax Act and the tax treatment of income and assets vested in beneficiaries of trusts could have unintended consequences where non-residents are involved. It is proposed that these aspects be reviewed.
Reviewing the scope of the intermediary provisions - Intermediaries may account for VAT on supplies made on behalf of foreign suppliers of “electronic services” as if these supplies were made by the intermediary. This, however, does not extend to supplies made on behalf of local suppliers. This results in the intermediary not being able to issue a single consolidated tax invoice for these supplies to the customer. It is proposed that widening the intermediary provisions be considered to include supplies facilitated on behalf of local suppliers.
