Finance Minister Enoch Godongwana announced during his 2026 Budget speech on February 25 that a R20-billion tax increase that was previously earmarked for the 2026 Budget has been withdrawn and personal income tax (PIT) brackets, as well as medical tax credits, will be fully adjusted for inflation after two years of no inflationary relief.

Tax thresholds and limits will also be adjusted for the impact of inflation to assist small businesses and provide overall relief to taxpayers.

Last year’s Budget announced that R20-billion in tax increases would be proposed in the 2026 Budget to fund new and persistent spending pressures, however, revenue collection has been stronger than expected owing to steady economic growth and commodity price increases.

Government’s gross tax revenue for 2025/26 has been revised upwards by R21.3-billion compared with estimates in the 2025 Budget. The tax-to-GDP ratio increase by 25.9% in 2025/26 from 25.1% in 2024/25.

Specific excise duties on alcoholic beverages and tobacco products will increase by 3.4% at the end of February. Excise tax on malt beer and ciders both will increase by 8c per 340 ml can, while unfortified wine excise duties will increase by 15c per 750 ml bottle. Excise tax for fortified wine will increase by 26c per 750 ml bottle and cigarettes will have an excise duty increase of 77c per packet of 20.

The general fuel levy will increase to R4.10 per litre for petrol and R3.93 for diesel from April 1, while the Road Accident Fund levy will increase by 7c per litre to R2.25 per litre – both increases are in line with or less than inflation.

The carbon tax already increased from R236/t of carbon dioxide equivalent to R308/t from January 1, while the carbon fuel levy will increase to 19c per litre for petrol and 23c per litre for diesel from April 1. This is also in line with inflation.

Treasury may soon tax online gambling for the first time. After publishing a draft national online gambling tax discussion paper for public comment in November 2025, which proposed a tax of 20% on gross gambling revenue generated by online gambling, the public comment period was extended to February 27.

Treasury will also host a workshop with those who submitted comments and include proposals in draft legislation format for another round of public comment later in the year.

Godongwana emphasises that the capital gains tax exemption for the sale of a small business for older persons is being raised from R1.8-million to R2.7-million. This applies to small businesses worth R15-million instead of the R10-million previously. It will enable small business owners to receive more tax relief when they sell their businesses.

Meanwhile, Godongwana expects that government will garner R844-billion in tax revenue from PIT in 2026/27, R521-billion from value-added tax (VAT), R364-billion from corporate income tax, R159-billion from customs and excise duties, R104-billion from fuel levies and R132-billion from other taxes.

Effective April 1, the compulsory VAT registration threshold increases to R2.3-million; the turnover tax regime for microbusinesses is adjusted for inflation, with the restriction on tax year end dates removed; and tax-free investments’ yearly limit increases from R36 000 to R46 000 to encourage savings.

The 2026 Budget tax proposals raise no additional revenue over the medium-term, which means the medium-term tax revenue outlook has been revised down by R57-billion. Treasury explains improvements in several tax bases will partly offset the withdrawn R20-billion in tax increases and confirms that tax buoyancy remains strong.

Treasury says despite challenging economic conditions, South Africa’s tax system has performed well, with the tax-to-GDP ratio increasing from 25.1% in 2024/25 to 25.9% in 2025/26.

The tax-to-GDP ratio is expected to reach 26.2% by 2028/29 as economic growth improves.

In the first three quarters of 2025/26, South African Revenue Service (Sars) significantly reduced overdue scheduled payments, which declined from R14.6-billion to R6.8-billion. The entity has made targeted efforts to improve detection of illicit goods such as cigarettes to address excise noncompliance.

Using new technology Sars registered 1.3-million new taxpayers across various tax categories, contributing net revenue of R4.9-billion, up slightly from the same period in the prior year.

Treasury affirms that sustained investments and economic growth, as well as further improvements in tax administration, will ultimately support higher revenue collection.