Finance minister Enoch Godongwana has announced that personal income tax brackets and medical tax benefits will be fully adjusted for inflation after two years.
The minister tabled his 2026 budget speech during a joint sitting of Parliament in Cape Town on Wednesday afternoon. The speech comes as gross tax revenue for 2025/26 is revised upwards by R21.3bn from last year.
Tabling the speech, Godongwana said government spending remains highly redistributive. The social wage accounts for more than 60% of non-interest spending over the medium term.
“Basic education, health and social protection constitute 70.3% of the social wage in 2026/27, providing support to 13.6-million school children, healthcare services to 84% of the population and social grants to 26.5-million beneficiaries.”
He said South Africa’s tax system has demonstrated resilience despite slow economic growth.
“Higher-than-expected net VAT, corporate income tax and dividends tax collections improved the in-year outlook. As a result, government has decided to withdraw the R20bn in tax increases provisionally included in the May 2025 budget. The improving fiscal position allows us enough room to withdraw the proposed tax increases, without putting fiscal sustainability or economic activity at risk.”
The Budget Review said personal income tax brackets for 2026/27 and rebates will be adjusted in line with the National Treasury’s inflation projections of 3.4% and medical tax credits will increase for the first time in two years from R364 to R376 for primary members and from R246 to R254 for additional members.
“Taxpayers have not been granted full relief from the effects of inflation in the last two budgets due to fiscal constraints. As a result, personal income tax revenue increased as a percentage of total tax revenue,” the Budget Review said.
However, the Budget Review warns that personal income tax and excise duty collections are likely to underperform, even as value-added-tax (VAT) and corporate income tax collections shoot the lights out.
“Higher-than-expected net VAT, corporate income tax and dividends tax collections improved the in-year outlook, although personal income tax and specific excise collections are expected to fall short of 2025 budget projections.”
Personal income tax contributed close to 40% of gross tax revenue to the fiscus in 2024/25. Corporate income tax has contributed the least in the past 23 years, reaching a low of just over 15% in 2019/20.
“Net VAT collections are revised up from the 2025 Budget thanks to resilient household consumption expenditure, which benefited domestic VAT collections, and lower VAT refunds. This is offset by a weaker outlook for import VAT due to lower-than-expected nominal import growth.”
The Budget Review said South Africa’s tax system has remained resilient despite weak economic conditions and lower levels of nominal GDP. It said improved economic conditions have given the government room to withdraw previous tax hikes, including last year’s rejected VAT hike proposal.
“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 Budget Review said.
The review said while the personal income tax system was highly progressive, it relied heavily on a narrow tax base, with the top 13% of individual taxpayers paying more than 60% of personal income tax and nearly half of all income tax paid by 7.7% of taxpayers.
“Both personal and corporate income tax contributions to total tax revenue are higher in South Africa than the average across Organisation for Economic Cooperation and Development countries. South Africa has become heavily reliant on these two direct taxes, which accounted for approximately 55% of total tax revenue in 2023.”
The review said in 2026/27, National Treasury would implement the updated global minimum tax rules aimed at reducing profit shifting by multinational companies, however the R2bn revenue estimates this is expected to yield are well below the previous projections of R8bn.
TimesLIVE
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