Budget Speech 2025

Honourable Members, we thoroughly examined alternatives to raising the VAT rate. We weighed up the policy trade-offs involved, including increases to corporate and personal income taxes.

Increasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth.

Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs.

Furthermore, South Africa’s corporate income tax collections are already higher than most of our peer countries.

On the other hand, an increase to the personal income tax rate would reduce taxpayers’ incentives to work and save.

Our top personal income tax rate and our personal income tax collections as a percentage of GDP are far higher than those of most developing countries. Increasing it is therefore not feasible.

Taking on additional debt to meet the spending pressures was also not feasible. The amount is simply too large. The cost of borrowing would be unaffordable. Our sub-investment credit rating would also make this level of borrowing costlier and put us at risk of even further downgrades.

Madam Speaker, VAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered.

The increase is also the most effective way to avoid further spending cuts and to enable us extend the social wage.