Tax relief and threshold adjustments

Following a difficult 2025 Budget marked by revenue pressure and fiscal restraint, the 2026 National Budget signals a noticeable shift in approach. Delivered on 25 February 2026, the Budget recognises the significant burden borne by taxpayers over the past two years.

In response, Government has implemented full inflationary adjustments to personal income tax brackets, tax rebates, medical scheme tax credits, and various monetary thresholds. Importantly, there is no increase in VAT or the corporate income tax rate. The primary focus of this year’s Budget is relief through bracket adjustments and the modernisation of longstanding tax limits.

Key tax proposals

The main tax measures announced in the 2026 National Budget include:

• Full inflationary adjustments to personal income tax brackets and medical tax credits, limiting fiscal drag.
• Adjustments to various tax thresholds, to support small businesses and encouraging long-term saving and retirement funding.
• Inflationary increases in excise duties (“sin taxes”) on alcohol and tobacco.
• Fuel levy adjustments effective 1 April 2026, as follows:
  • General fuel levy increased to R4.10 per litre (petrol) and R3.93 per litre (diesel).
  • Road Accident Fund (RAF) levy increased by 7 cents per litre to R2.25 per litre.
  • Carbon fuel levy increased to 19 cents per litre (petrol) and 23 cents per litre (diesel).

Personal income tax – inflationary adjustments

For the 2026/27 year of assessment (ending 28 February 2027), personal income tax brackets, rebates, and medical scheme fees tax credits have all been adjusted in line with inflation.

Taxable Income	Tax Rate
R0 – R245 100	18% of taxable income
R245 101 – R383 100	R44 118 + 26% above R245 100
R383 101 – R530 200	R79 998 + 31% above R383 100
R530 201 – R695 800	R125 599 + 36% above R530 200
R695 801 – R887 000	R185 215 + 39% above R695 800
R887 001 – R1 878 600	R259 783 + 41% above R887 000
R1 878 601 and above	R666 339 + 45% above R1 878 600

The upward adjustment of bracket thresholds reduces the impact of fiscal drag.

Rebates

Rebate	2026/27	2025/26
Primary rebate	R17 820	R17 235
Secondary rebate (65–74)	R9 765	R9 444
Tertiary rebate (75+)	R3 249	R3 145

Tax thresholds

Age Category	2026/27	2025/26
Below 65 years	R99 000	R95 750
65 to below 75 years	R153 250	R148 217
75 years and over	R171 300	R165 689

Medical scheme fees tax credits

Medical scheme fees tax credits have also been adjusted in line with inflation:

Category	2026/27	2025/26
Taxpayer	R376 per month	R364 per month
First dependant	R376 per month	R364 per month
Each additional dependant	R254 per month	R246 per month

Adjustments to tax thresholds and monetary limits

Several monetary thresholds have been revised to restore their real value and enhance planning flexibility.

Summary of key threshold adjustments:

Description	Current amount	Proposed amount
VAT compulsory registration threshold	R1 000 000	R2 300 000
Turnover tax annual turnover limit	R1 000 000	R2 300 000
Voluntary VAT registration threshold	R50 000	R150 000
Primary residence exclusion	R2 000 000	R3 000 000
Annual CGT exclusion	R40 000	R50 000
Tax-free investment annual limit	R36 000	R46 000
Retirement fund deduction limit	R350 000	R430 000
Donations exemption – individuals	R100 000	R150 000

Threshold adjustments are effective from 1 March 2026 unless otherwise indicated.

VAT registration threshold changes

Effective 1 April 2026:

• Compulsory VAT registration threshold increases from R1 million to R2.3 million.
• Voluntary VAT registration threshold increases from R50 000 to R120 000.

Vendors whose taxable supplies do not exceed R2.3 million may apply for deregistration. Upon deregistration, a vendor is deemed, in terms of section 8(2) of the VAT Act, to supply goods forming part of the enterprise at market value to the extent that input VAT was previously deducted on their acquisition or importation. This may result in output VAT being payable on capital assets, trading stock and other goods on hand where input tax was originally claimed. The potential cash flow impact should therefore be assessed before deregistering.

Provisional tax – underestimation penalty reform

From 25 February 2026, taxpayers may only rely on a provisional tax estimate for purposes of avoiding the underestimation penalty if the estimated amount is paid on time. Safeguards will be introduced to prevent duplication of penalties.

In addition, the monetary cap allowing taxpayers to rely on the prior year’s assessed taxable income (instead of preparing a current estimate) will increase from R1 million to R1.8 million for years of assessment commencing on or after 1 March 2026.

Voluntary Disclosure Programme – interest remission

Following the Constitutional Court decision in Medtronic International Trading S.A.R.L, it is proposed that applicants under the Voluntary Disclosure Programme be permitted to apply simultaneously for remission of interest under the relevant tax act in respect of defaults disclosed.

This amendment will be effective from 1 March 2026 and will apply to future applications.

Conclusion

The 2026 National Budget introduces inflationary adjustments across income tax brackets, medical tax credits and key monetary thresholds, while modernising VAT registration limits and refining certain administrative aspects of the tax framework, including the voluntary disclosure and provisional tax regimes.

Employers should update payroll systems from 1 March 2026. Businesses should evaluate the impact of the revised VAT thresholds from 1 April 2026. Taxpayers should reconsider savings, retirement and capital planning strategies in light of the expanded limits.

ASL will continue monitoring draft legislation and assisting clients to align their compliance and planning strategies with the revised framework.

This article highlights the most relevant tax changes and proposals relevant to ASL’s clients. It does not constitute a comprehensive summary of all measures announced in the 2026 National Budget. Download our electronic tax guide here