The South African Revenue Service (Sars) has announced that it has agreed to the revised revenue estimate of R1.846 trillion for the 2024/25 fiscal year, as announced by Finance Minister Enoch Godongwana.
This marks a slight increase from the R1.841 trillion estimate put forward in the previous year’s Medium-Term Budget Policy Statement (MTBPS). Despite challenging economic conditions, Sars says it remains confident in meeting its tax collection goals, with the shortfall against the initial February 2024 estimate reduced from R22.3 billion to R16.7 billion. Speaking about the country's ongoing economic struggles, Sars commissioner Edward Kieswetter says: "Despite the tough economic conditions, we remain resolute in fulfilling our mandate, which is essential in supporting the government’s developmental goals".
Employment Taxes
One of the key measures announced in the 2024 Budget was the decision not to adjust personal income tax brackets and rebates for inflation, resulting in an estimated revenue shortfall of R16.3 billion. The Minister also confirmed that medical tax credits would remain unchanged, affecting an additional R1.9 billion. Furthermore, the introduction of the two-pot retirement fund withdrawal system, set to yield R5 billion in the 2024/25 fiscal year, is expected to have a significant impact on revenue collection.
Kieswetter says that Sars had initially anticipated a 13.8% growth in employment taxes, based on a projected 8.4% increase in the wage bill. "However, this growth was adjusted downward following revisions to the wage bill forecast, which was lowered to 5.5% in the MTBPS," he says. This change required an upward revision in the year-on-year growth target for PAYE to 12.4%. Fortunately, this shortfall was partially offset by stronger-than-expected pension fund withdrawals and improved compliance revenue.
VAT performance
Domestic VAT collections, projected to grow at 7.1% in the 2024 Budget, have remained relatively steady. Factors such as lower inflation and interest rates, along with pension fund withdrawals that boosted disposable income, have supported this steady performance. "The strength of domestic VAT is a reflection of South Africa’s resilient consumer market," says Kieswetter.
On the other hand, import VAT has been a disappointment, as imports contracted by 1.3% in the third quarter of 2024, leading to a R4.3 billion shortfall compared to the previous year’s projections.
Fuel levy
The fuel levy, initially expected to raise R95.8 billion in 2024, was revised down to R82.4 billion due to lower-than-expected fuel consumption. By February 2025, fuel consumption had dropped to 21 billion litres compared to 24 billion litres in the prior year. "The continued lower consumption of fuel, combined with significant refunds from previous years, has resulted in a reduced forecast for the fuel levy," says Kieswetter.
Refunds and revenue collection
By 28 February 2025, Sars says it had collected R1.661 trillion in net revenue, following gross collections of R2.074 trillion and refunds amounting to R413.3 billion. "The growth in VAT refunds was particularly notable, reflecting an increase in VAT credit returns due to greater input tax declared by businesses," says Kieswetter.
Company Income Tax (CIT)
Corporate income tax (CIT) is expected to be R302.5 billion in 2024, representing a 3.3% contraction year-on-year. This decline is largely driven by the mining sector’s underperformance, particularly the 28.4% drop in CIT payments from large mining companies. "The mining sector has struggled due to a combination of declining commodity prices and logistical challenges," according to Kieswetter. Similarly, the manufacturing sector saw a minor contraction of 1.6%.
Government's fiscal strategy and VAT increases
To meet the revised revenue target, Sars says it will continue to enhance its compliance measures, improving services for taxpayers while employing advanced technologies such as artificial intelligence and machine learning to combat non-compliance and tax crime.
However, the introduction of a VAT increase has become one of the most controversial aspects of the 2025 Budget. The government plans to raise VAT rates by 0.5 percentage points in both the 2025/26 and 2026/27 fiscal years, eventually bringing the VAT rate to 16% by 2026/27. Minister Godongwana defended the increase, stating that it was "necessary to support the country's fiscal stability and ensure adequate funding for essential public services."
The proposed VAT increase has been met with widespread criticism, particularly from trade unions and civil society organisations. The United Association of South Africa (UASA) expressed concern that the VAT hike would put additional strain on South African consumers, especially those in the lower and middle-income brackets. UASA’s spokesperson Abigail Moyo says: "While the increase is small, it will still contribute to the growing cost of living for ordinary South Africans, who are already struggling."
AfriForum, another civil rights group, also opposed the VAT increase, calling it "another blow to South African households." The group criticised the government for prioritising VAT hikes over much-needed cuts to government spending. "It is deeply concerning that the government has chosen to increase VAT instead of reworking its budget to alleviate the burden on citizens," says AfriForum’s representative.
Tax Justice South Africa (TJSA) went a step further, condemning the proposed increase as "unjust and counterproductive." TJSA founder Yusuf Abramjee says: "The government’s choice to increase VAT will only exacerbate the growth of the illicit economy, as law-abiding businesses will struggle to cope with the increased tax burden." He argued that focusing on honest taxpayers rather than cracking down on criminal activities is a mistake. “Illicit trade is robbing the fiscus of R100 billion every year, and yet the government continues to ignore this issue,” Abramjee added.
Economist Frank Blackmore of KPMG South Africa echoed similar sentiments, stating: "The increase in VAT, coupled with the failure to address illicit trade, will only deepen South Africa’s fiscal problems. The real challenge is not increasing taxes on consumers, but tackling the massive losses due to illegal economic activities."
Commissioner Kieswetter reaffirmed Sars’ commitment to modernising its operations and improving tax compliance. He highlighted that "investing in advanced technologies and strengthening our compliance programme is key to ensuring that we collect all revenue due to the fiscus, especially in these challenging times."
Sars says it will also focus on tackling debt owed to the organisation and improving technology capabilities, particularly through the use of artificial intelligence and machine learning to combat sophisticated tax crimes. "The continued investment in technology and data analytics is critical in modernising Sars and staying ahead of evolving tax crime," says Kieswetter.
PERSONAL FINANCE