As South Africa’s Finance Minister Enoch Godongwana prepares to deliver the national budget on February 19, PwC warns that tax revenues will fall R10 billion short of expectations.
The consulting firm attributes the shortfall to weaker-than-expected VAT collections and lower corporate tax revenue, driven by declining commodity prices and ongoing logistics challenges.
Revenue Collections Lag Behind Targets
The National Treasury initially set a tax revenue target of R1,863 billion for the 2024/25 fiscal year. In the Medium-Term Budget Policy Statement (MTBPS) 2024, officials revised the estimate downward to R1,841 billion, but PwC now predicts an even lower figure of R1,830 billion.
PwC South Africa tax policy leader Kyle Mandy warns that revenue collection will significantly underperform compared to both the original budget estimate and the revised MTBPS projections.
“We expect revenue collections to be slightly lower than the revised estimates in MTBPS 2024 by around R10 billion, mainly due to lower-than-forecast VAT collections,” Mandy explains.
South African CEOs Expect Growth, Despite Fiscal Challenges
PwC’s 28th Annual Global CEO Survey reveals that 83% of South African CEOs expect local economic growth to improve in 2025, aligning with broader economic forecasts. However, PwC cautions that overestimating economic growth could create unrealistic fiscal revenue projections.
“Our wish is for Budget 2025 to be encouraging to the business community and to lift business sentiment by providing an update on progress made in key economic and structural reforms, as well as solutions towards the country’s energy and logistics challenges”
No Major Tax Increases Expected
Despite the revenue gap, PwC does not expect the government to raise major taxes in Budget 2025. The firm believes full fiscal drag relief will likely apply to personal income tax (PIT), preventing inflation from pushing taxpayers into higher brackets.
PwC also forecasts:
- No increase in corporate tax rates
- Inflationary increases in medical tax credits
- A possible expansion of VAT zero-rated essential food items
- Fuel and Excise Duties Set for Adjustments
PwC predicts that the government will increase the general fuel levy for the first time since 2021, given stabilising fuel prices and lower inflation. However, officials may keep the Road Accident Fund (RAF) levy unchanged, as potential reforms remain under discussion.
Excise duties on alcohol, tobacco, and vaping products will likely rise above inflation, continuing a trend from previous years.
Renewable Energy and Carbon Tax Updates Expected
The government may extend the enhanced renewable energy tax deduction, depending on the outcome of a recent review. However, PwC does not expect officials to renew the solar energy tax credit.
Carbon tax rates will increase to R236 per ton in 2025, with a gradual rise to R462 per ton by 2030. The government is also considering adjustments to tax allowances and support for energy transition efforts.
Transfer Duties and Wealth Taxes Unlikely to Change
PwC expects the government to adjust transfer duty tax brackets for inflation, but officials will not change tax rates. Despite ongoing debates, no new wealth taxes will appear in Budget 2025.
PwC Calls for Better Tax Enforcement, Not Higher Taxes
PwC urges the National Treasury to improve tax enforcement instead of raising taxes to close the revenue gap.
“It is hoped that National Treasury will not increase taxes in Budget 2025,” Mandy says. “Budget 2024 saw a net R15 billion in tax increases, with personal income tax alone contributing R18.2 billion. We hope full relief will be given for fiscal drag on PIT.”
As the budget speech approaches, business leaders will closely watch how the government balances tax policy, spending priorities, and economic growth objectives in a challenging fiscal environment.
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