South Africa’s 2025 Budget: Key Tax Proposals

The SA Minister of Finance, after a three-week delay, presented the 2025 Budget on 13 March 2025. Below, we unpack the key tax proposals.

A Closer Look at the 2025 Budget

This year’s Budget has been crafted under two guiding principles: fiscal prudence and medium-term stability. The National Treasury aims to ensure that the country’s debt levels remain within manageable limits while still empowering economic growth and infrastructure development. If you’re a taxpayer, an entrepreneur, or a curious observer of public finances, here’s what you need to know:

A Two‑Stage VAT Increase

The National Treasury proposes to increase the Value-Added Tax (VAT) rate by 0.5 percentage points twice over the next two financial years. The new rate will rise from the current 15.0% to 15.5% on 1 May 2025 and then to 16.0% on 1 April 2026.

Why this matters: Although this phased approach is more moderate than earlier proposals (which aimed for a jump to 17%), the increase remains significant. It is designed to generate approximately R28 billion in extra revenue in 2025/26 and R44 billion in 2026/27.

According to the Budget Review Document, a rate increase affects all households through price increases, but most VAT is paid by higher-income households, which consume more. Over 75 percent of VAT revenue is derived from households in the top four expenditure deciles, which roughly corresponds to households that spend R118 000 or more per year. “Increasing taxes on consumption through a higher VAT rate will have the least detrimental effect on economic growth and employment over the medium term, relative to increases in personal or corporate income tax rates.” 

However, this comes at a cost: higher VAT will raise consumer prices. The VAT system currently zero rates 21 essential food items in an effort to make them more affordable for lower-income households. Government proposes to extend the list of zero-rated basic foods to mitigate the effect of the VAT rate increases for lower income households. From 1 May 2025, zero rating will be extended to include edible offal of sheep, poultry, goats, swine and bovine animals; specific cuts such as heads, feet, bones and tongues; dairy liquid blend; and tinned or canned vegetables.

In line with the VAT increase, SARS also decided not to adjust the individual tax brackets or the rebates and have also increased the thresholds for transfer duty.

Amongst some local SA corporate tax proposals, the following proposals were announced:

The flow-through taxation of trusts and their beneficiaries

Prior amendments made to the rules relating to the taxation of trusts and their beneficiaries were made in 2013 which limited the flow-through principle to resident beneficiaries. This effectively resulted in tax being payable in the Trust prior to distributions being made to non-resident beneficiaries.

These amendments could be creating unintended consequences where non-residents are involved. National Treasury has proposed to consider this in more detail.

Cross-border tax treatment of retirement funds

The existing approach to cross-border retirement funds potentially creates situations of double non-taxation, especially in cases where tax treaties grant South Africa the taxing authority. A proposal has been put forward to modify regulations that currently provide exemptions to South African residents receiving lump sums, pensions, and annuities from foreign retirement funds related to previous employment outside South Africa. These amendments are scheduled to be implemented during the current legislative cycle.

Tax Treaties

The government intends to broaden South Africa’s network of tax treaties while also renegotiating certain existing agreements. These efforts aim to reinforce economic and trade relationships, eliminate instances of double taxation, prevent tax abuse and strengthen cooperation within the region.

And that’s the summary of key tax proposals in this year’s budget, a significant shake-up following months of speculation. Stay tuned for more insights as we continue to monitor how these changes will impact South African taxpayers.