The Africa Tax Review - Tax updates across Africa, simplified

South Africa's tax system faces a critical challenge as a small percentage of taxpayers continue to bear the burden of the country’s revenue collection. Recent data from the National Treasury reveals that just 3.94% of taxpayers contribute nearly half of all personal income tax (PIT), raising concerns about the sustainability of the nation’s fiscal framework. Heavy Reliance on a Narrow Tax Base Efficient Group Chief Economist Dawie Roodt has expressed concerns over the government’s increasing dependence on a small group of high-income earners. He warns that any further tax burden placed on this group could lead to unintended consequences, including a potential collapse of revenue collection efforts. According to the latest figures, PIT remains the government’s primary revenue source, expected to generate R811.1 billion in the upcoming financial year. This is followed by value-added tax (VAT) at R499.5 billion and corporate income tax (CIT) at R331.3 billion. These revenues fund essential public services such as infrastructure, education, healthcare, and social grants. Nigeria Grants Tax Relief on Healthcare Raw Materials to Lower Costs Growing Number of High Earners, But Still Too Few In the 2025/26 financial year, 569,351 South Africans earning over R1 million annually contributed to PIT. This marks a 16% increase from the 490,676 high-income earners recorded in the previous year. However, despite this rise, these individuals account for less than 4% of the total 14.45 million registered taxpayers yet contribute almost half of PIT revenue. Economists caution that relying so heavily on such a small group creates a fragile tax system. “The fact that such a small number of individuals contribute so much is a warning sign,” Roodt stated. “If this group feels overburdened, they may seek alternative ways to reduce their tax liabilities, including relocating their wealth abroad.” Tax Bracket Freeze Sparks Concern Originally, the National Treasury had planned minor adjustments to tax brackets in its February budget. However, the revised budget omitted these changes, meaning taxpayers will face bracket creep, effectively paying more tax as inflation pushes their earnings into higher tax brackets. Roodt argues that this decision is problematic. “Not adjusting tax tables is bad news. It places an increasing burden on the same set of taxpayers, making the tax system less sustainable in the long run.” Revenue Targets May Be Overestimated While the government expects these tax measures to generate an additional R28 billion in 2025/26 and R14.5 billion in 2026/27, Roodt believes these projections are overly optimistic. He suggests that South Africa has surpassed the optimal point on the Laffer Curve, where increasing tax rates further could actually reduce overall revenue. “The economy is not expanding at a rate that supports higher tax collection,” he explained. “Employment growth is stagnant, and additional taxation risks discouraging economic participation.” The VAT Increase: An Overestimated Impact? In addition to personal income tax concerns, the government anticipates collecting R13.5 billion from a 0.5% VAT increase. However, Roodt predicts that the real figure will be closer to R10 billion, as demand-side economic pressures may suppress consumer spending. “The government has overestimated the secondary effects of demand. Households are already struggling with inflation and high debt levels, meaning they may cut back on spending rather than absorb higher VAT costs,” he noted. Capital Flight and Wealth Relocation Roodt also highlighted a growing trend among South Africa’s high-net-worth individuals—shifting their assets abroad to escape rising taxation. “My work with wealthy clients shows a clear pattern: they feel overtaxed and are moving their money out of South Africa,” he revealed. “Many of them work in industries that allow remote operations, making it easier for them to relocate to more tax-friendly jurisdictions.” If personal income tax rates increase further, more high earners could restructure their tax affairs to reduce their local obligations. This could exacerbate South Africa’s revenue challenges, creating further economic instability. The Risk of Pushing Too Far Experts caution that further tax hikes could backfire, leading to declining revenues rather than increased collections. “If the government continues down this path, tax compliance could erode, and future revenues will come under significant pressure,” Roodt warned. South Africa's tax authorities face a difficult balancing act—ensuring sufficient revenue generation while avoiding policies that drive taxpayers away. Without a broader tax base and meaningful economic growth, the country’s reliance on a shrinking pool of high earners could threaten long-term fiscal stability.

Tax Base Under Pressure in South Africa: Experts Warn of Collapse Risk

March 27, 2025March 27, 2025 - by Jeremiah Amosu - Leave a Comment

South Africa’s tax system faces a critical challenge as a small percentage of taxpayers continue to bear the burden of the country’s revenue collection. Recent data from the National Treasury …

WESTERN AFRICA

Nigeria Grants Tax Relief on Healthcare Raw Materials to Lower Costs

March 27, 2025March 27, 2025 - by Jeremiah Amosu - Leave a Comment

The Nigeria Customs Service (NCS) has announced a tax exemption for key raw materials used in the production of healthcare products, removing both import duties and Value Added Tax (VAT) …

NORTHERN AFRICA

Egypt Extends Tax Filing Deadline to First Working Day After Eid al-Fitr

March 21, 2025March 20, 2025 - by admin - Leave a Comment

The Egyptian Tax Authority (ETA) has officially extended the tax filing deadline to the first working day after Eid al-Fitr. According to Rasha Abdel Aal, Head of the ETA, this …

The South African government has announced a planned increase in the Value-Added Tax (VAT) rate as part of its fiscal policy adjustments for the 2025-26 tax year. The proposal, outlined in the 2025 budget speech, has sparked debate among lawmakers and stakeholders, with concerns over its economic impact and parliamentary approval timeline. VAT Rate to Rise in Two Stages Effective May 1, 2025, the standard VAT rate will rise from 15% to 15.5%. A further increase to 16% is scheduled for April 1, 2026. The staggered adjustment aims to bolster government revenue amid growing fiscal challenges. To cushion the impact on low-income households, the government has proposed an expansion of the VAT zero-rated food list, adding essential items such as canned vegetables, dairy liquid blends, and specified organ meats. Social Grants and Income Tax Remain Unchanged Alongside the VAT hike, the budget includes moderate increases in social grants. Old age and disability grants will rise to ZAR 2,315 (US$126) from ZAR 2,185 (US$119), while child support grants will increase to ZAR 560 (US$30) from ZAR 530 (US$28). However, individual income tax brackets, rebates, and medical tax credits will remain unchanged for the upcoming fiscal year. Transfer duty rates on property transactions not subject to VAT will also be adjusted, with changes taking effect on April 1, 2025. Parliamentary Debate Could Delay Implementation The proposed VAT increase has not been without controversy. The budget, tabled by Finance Minister Enoch Godongwana on March 12, 2025, has faced resistance from major political parties. While the initial proposal suggested a 2-percentage-point increase, it was revised to a more gradual 1-point hike over two years in response to political pushback. Despite the adjustments, there is no certainty that the budget will pass before the fiscal year ends on March 31, marking an unprecedented delay in South Africa’s post-apartheid era. The ruling African National Congress (ANC) will need to secure support from at least one major opposition party to ensure its approval. What Happens if the Budget Fails? If the budget is not passed by April 1, the government is legally permitted to continue operating on up to 45% of the previous year’s budget until parliamentary approval is secured. However, new allocations, including those linked to tax reforms, cannot be implemented without formal approval. Despite the parliamentary deadlock, the National Treasury has confirmed that the VAT increase can take effect from May 1, 2025, even if the budget is not yet passed. The tax rate change, once implemented, would remain valid for up to 12 months unless lawmakers overturn the decision through legislative amendments. Next Steps for Lawmakers Parliament will review the budget in three key stages: approving the fiscal framework and revenue proposals, passing the division of revenue bill to allocate funds among government tiers, and finally voting on the appropriation bill to assign funding to specific programs. Lawmakers have until April 3 to approve the fiscal framework, but delays could extend the process. While amendments to the budget are possible, any changes must align with the overall revenue and expenditure limits set out in the proposal. The ANC, which lost its parliamentary majority for the first time in South Africa’s democratic history, faces a tough negotiation process. Secretary-General Fikile Mbalula has expressed willingness to engage with opposition parties to secure a deal. Meanwhile, Minister Godongwana has indicated openness to alternative proposals but has warned of the difficult trade-offs required. Economic and Policy Implications The VAT increase, coupled with other tax adjustments, is expected to play a crucial role in stabilizing South Africa’s fiscal position. However, the political uncertainty surrounding budget approval adds a layer of unpredictability to the implementation process. As the debate unfolds, taxpayers, businesses, and investors will closely monitor the developments, given the broader economic implications of the proposed tax hikes and fiscal policies.

SOUTHERN AFRICA

South Africa Set to Raise VAT Rate Amid Budget Uncertainty

March 20, 2025March 20, 2025 - by admin - Leave a Comment

The South African government has announced a planned increase in the Value-Added Tax (VAT) rate as part of its fiscal policy adjustments for the 2025-26 tax year. The proposal, outlined …

WESTERN AFRICA

Deloitte Warns of Revenue Risks as Ghana Moves to Scrap E-Levy, Betting Tax

March 20, 2025March 20, 2025 - by Jeremiah Amosu - Leave a Comment

Ghana’s plan to eliminate certain taxes, including the Electronic Levy (E-Levy) and betting tax, poses a significant risk to the government’s revenue targets, according to professional services firm Deloitte. In …

WESTERN AFRICA

House of Reps In Nigeria Approves Tax Reform Bills

March 19, 2025March 19, 2025 - by Jeremiah Amosu - Leave a Comment

The Nigerian House of Representatives has approved four major tax reform bills, marking a significant step toward overhauling the country’s tax administration. The bills successfully passed their third reading on …

WESTERN AFRICA

Breaking: Tax Reforms Vital for Economic Growth in West Africa

March 19, 2025March 19, 2025 - by Jeremiah Amosu - Leave a Comment

The Chairman of the Federal Inland Revenue Service (FIRS), Zacch Adedeji, has reaffirmed Nigeria’s commitment to advancing tax policy development and strengthening tax administration across West Africa. Speaking at the …

SOUTHERN AFRICA

South Africa Faces Backlash Over Proposed VAT Hike in 2025/2026 Budget

March 13, 2025March 13, 2025 - by Jeremiah Amosu - Leave a Comment

South Africa’s Finance Minister, Enoch Godongwana, has come under fire from several political parties following the announcement of the 2025/2026 budget. The proposal to increase Value Added Tax (VAT) by …

WESTERN AFRICA

Ghana 2025 Budget: Taxes Abolished to Boost Growth

March 13, 2025March 13, 2025 - by Jeremiah Amosu - Leave a Comment

In a bold move aimed at revitalizing the economy, the government has announced the elimination of several taxes in the 2025 budget. This decision, presented by Finance Minister Dr. Cassiel …

EASTERN AFRICA

30% Tax Prepayment Required for Uganda Tax Appeals

March 13, 2025March 13, 2025 - by Jeremiah Amosu - Leave a Comment

The new tax prepayment requirement is set to take effect on March 11, 2025. In a bid to enhance tax compliance, the Uganda Revenue Authority (URA) has introduced a new …