In a year where additional tax increases of R20 billion had previously been penciled in, the most notable policy decision was their withdrawal. This alone signals a meaningful improvement in fiscal confidence and a recognition that further tax pressure could have been economically counterproductive.
Coupled with this, stronger-than-expected revenue performance, with gross tax revenue revised upward by R21.3 billion, has provided government with the fiscal space to prioritise relief over new taxation.
A More Positive Tax Story Than Expected
While the Budget has been described as “boring”, the reality is that it is fiscally constructive. Government has deliberately chosen predictability over shocks, and relief over aggressive revenue extraction.
Most importantly, taxpayers will receive inflationary relief for the first time in two years, with personal income tax brackets, rebates and medical tax credits fully adjusted for inflation. This directly protects individuals from bracket creep and prevents a silent increase in effective tax rates.
Lower and middle-income taxpayers in particular stand to benefit the most from these adjustments, reinforcing the progressive design of the tax system while providing some breathing room in a high cost-of-living environment.
Meaningful Increases to Key Tax Thresholds and Limits
Beyond the headline bracket adjustments, Chapter 4 of the Budget Review reveals several underappreciated positives that materially improve the tax landscape. Government has proposed far reaching increases to tax thresholds and limits to promote entrepreneurship, savings and fairness across the tax system.
Key examples include:
- VAT compulsory registration threshold increased from R1 million to R2.3 million
- Voluntary VAT registration threshold increased from R50 000 to R120 000
- CGT primary residence exclusion increased from R2 million to R3 million
- Annual CGT exclusion increased from R40 000 to R50 000
- Tax-free investment annual limit increased from R36 000 to R46 000
- Retirement fund contribution deduction limit increased from R350 000 to R430 000
- Donations tax exemption for individuals increased from R100 000 to R150 000
- Turnover tax threshold for micro businesses significantly expanded
These changes are not merely technical. They reduce compliance burdens for small businesses, incentivise savings and investment, and modernise thresholds that in some cases had not been adjusted for over a decade.
For entrepreneurs and growing businesses especially, the higher VAT and turnover tax thresholds represent a meaningful easing of administrative pressure and potential cash-flow benefits.
Fiscal Discipline Without New Tax Shocks
Another constructive signal is that government has now achieved a third consecutive primary budget surplus, while maintaining fiscal discipline without resorting to major new tax hikes.
This aligns with Treasury’s broader strategy to stabilise national debt levels, reduce borrowing costs and improve investor confidence. A stable fiscal framework, combined with predictable tax policy, is generally viewed more favourably by markets than sudden and surprise revenue-raising measures.
Importantly, the decision to withdraw previously proposed tax increases was driven by improving fiscal metrics and concerns about the negative economic impact of additional tax burdens.
SARS: Strong Performance, Stronger Enforcement Ahead
The Budget documents also reflect a resilient tax administration environment. Higher-than-expected VAT, corporate income tax and dividends tax collections have supported the improved revenue outlook. At the same time, SARS continues to receive additional funding for modernisation, enforcement and data analytics, signaling that compliance enforcement will remain a key focus area.
The tax authority’s expanding use of technology and targeted compliance initiatives, particularly in respect of high-net-worth individuals, large businesses and the digital economy, indicates that while the policy environment is becoming more stable, enforcement will likely become more sophisticated.
A Narrow Tax Base Still Remains a Structural Risk
Despite the positive adjustments, structural risks remain. The personal income tax system continues to rely heavily on a narrow tax base, with a small percentage of taxpayers contributing a disproportionately large share of tax revenue collected by SARS.
This reinforces Treasury’s long-standing view that sustainable revenue growth will ultimately depend more on economic expansion and the broadening of the tax base, rather than on increasing tax rates.
Economic Realities Still Temper the Outlook
The Minister acknowledged ongoing economic constraints, including logistics inefficiencies, infrastructure weaknesses and municipal distress. These factors continue to weigh on growth and limit the scope for more aggressive tax relief.
Nonetheless, the resilience of the tax system, even in a weak growth environment, suggests improved administrative efficiency and stable underlying tax buoyancy.
Conclusion: A Quietly Constructive Budget
Budget 2026 is not a headline-grabbing Budget. It introduces no surprise sweeping reforms and no major tax increases. However, that is precisely its strength.
The withdrawal of planned tax hikes, full inflationary relief, substantial increases in key tax thresholds, and a stable fiscal framework collectively point to a more taxpayer-friendly and growth-conscious policy stance.
In a volatile global and domestic environment, predictability, restraint and incremental relief may well be the most positive tax outcome South African taxpayers could have expected.
