2025 Budget speech – key tax and policy announcements

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On 12 March 2025, Finance Minister Enoch Godongwana delivered the much-anticipated 2025 Budget Speech following an unprecedented delay. The speech, originally scheduled for 19 February, was postponed due to disagreements within the Government of National Unity (GNU) regarding proposed tax increases, particularly a potential VAT hike from 15% to 17%.

Ultimately, the Treasury opted for a phased VAT increase of 0.5% annually over the next two years. According to the Minister, VAT is a broad-based tax with significant distributional effects. The phased approach aims to mitigate economic disruptions while ensuring sufficient revenue to sustain government spending and social programs.

Proposals stemming from the budget speech are highlighted below.

• VAT: The standard VAT rate is proposed to increase as follows:
  • From 15% to 15.5% on 1 May 2025.
  • From 15.5% to 16% on 1 April 2026.
  • The VAT zero-rating schedule will be expanded to include additional essential food items, such as certain canned vegetables and edible offal.
• Excise duties:
  • Alcoholic beverages: 6.75% increase.
  • Tobacco products: 6.75% increase on cigars and pipe tobacco, and 4.75% on cigarettes and other tobacco products.
• Transfer duty: Adjusted to account for inflation.
• No changes to the following tax rates:
  • Personal tax brackets for individuals for 2026 remain unchanged, with tax thresholds set at:
    • R95 750 (individuals below age 65);
    • R148 217 (ages 65 to below 75);
    • R165 689 (ages 75 and above).
  • Dividends withholding tax remains at 20%.
  • Fuel levy and Road Accident Fund levy remain unchanged.
  • Capital Gains Tax (CGT) inclusion rates remain unchanged.
  • Interest and royalty withholding tax rates remain at 15%.
  • Corporate income tax rate remains at 27%.
• Additional tax proposals
  • The Urban Development Zone (UDZ) incentive is proposed to be extended until March 2030.
  • Amendments are proposed to the exemption rules for foreign pension and retirement lump sums, particularly regarding services rendered outside South Africa.
  • The tax treatment of asset-for-share transactions is under review, particularly in cases involving listed shares or collective investment schemes.
  • The “flow-through” principle for South African trusts—previously limited to SA beneficiaries in 2023—is under review due to unintended consequences.
  • The renewable energy tax incentive, introduced in 2023 as a two-year measure, will not be extended.
  • A customs voluntary disclosure programme (VDP) will be introduced.
  • The government aims to expand and renegotiate various tax treaties to enhance South Africa’s international tax framework.

Note: This summary does not cover all proposed changes. A comprehensive analysis is available in ASL’s electronic tax guide.

Legislative and practical implications of the VAT increase

While the Budget has been tabled, it must still be approved by Parliament. However, opposition parties have indicated they will not support the VAT increase, despite the revision from the initially proposed 2% hike to a phased 0.5% annual adjustment.

Timing and legal framework

• Section 7(4) of the Value-Added Tax Act, 1991 (VAT Act) governs VAT rate changes. Once the Minister announces a VAT increase in the National Budget, the change takes effect on the date specified—regardless of whether Parliament has formally approved the Budget.
• Accordingly, the 15.5% VAT rate will take effect from 1 May 2025, even though Parliament is only expected to vote on the Budget later in May.
• If Parliament does not enact the legislation within 12 months, the VAT rate will revert to 15%.

Practical impact for VAT vendors

• Businesses must apply the 15.5% VAT rate from 1 May 2025 to remain compliant.
• If Parliament ultimately rejects the Budget, legal or political measures may be required to revert the increase.

Conclusion

Despite political uncertainty, VAT vendors must implement the 15.5% rate from 1 May 2025 unless an official intervention occurs. Businesses should prepare for the increase accordingly and monitor legislative developments closely.