A recent report detailing South Africa's personal income tax contributions has ignited concerns regarding the sustainability of the nation's revenue collection.
The National Treasury report indicated that the number of millionaires paying tax has increased by 16% in the previous 2024/25 fiscal year. While personal income tax (PIT) remains a crucial component of government revenue, funding essential services like healthcare, education, and social grants, the data suggests a diminishing capacity for further increases.
In the National Treasury report, the Finance Minister, Enoch Godongwana, acknowledges that tax stretching may cause individual emigration to rise, resulting in an estimated R3 billion in tax losses.
Godongwana said, “The impact is cushioned by allowing complete access to the two-pot retirement fund system, extension of fuel levy relief, and the addition of new food items to the basket of goods that are zero-rated for VAT.”
The choice to leave the amended budget unchanged resulted in inflationary bracket creep. Godongwana implemented this trade-off to compensate for the lower VAT rise.
IOL spoke to Fatsani Banda, an independent economist, who said, “Taxpayers are increasingly reaching their limit, potentially jeopardising government revenue and exacerbating socioeconomic challenges.
"We are witnessing a scenario where the middle class, already heavily burdened, is struggling to absorb further financial strain."
According to the latest statistics by the National Treasury, a slowdown in personal income tax growth could force the Treasury to explore alternative revenue streams, potentially leading to increased corporate taxes, along with the VAT increase of 0.5% proposed by Godongwana in the next three years, which is still on the table to be debated by the government of national unity (GNU) and other political parties.
In Godongwana's budget revenue review report for 2025, it shows that the government is expecting to collect R801.5 billion from personal income tax, R545.4 billion from the VAT increase, and R325.0 billion from corporate tax.
The above data highlights the income inequality and tax burden the high earners are facing in South Africa. There is a significant income inequality gap, with a large portion of taxpayers falling into lower income brackets and a relatively small percentage of high earners contributing a substantial portion of the total income tax.
The 2025 budget speech addresses key issues related to the South African economy, including fiscal stability, addressing inequality, economic growth, and tax proposals. The budget speech focuses on maintaining macroeconomic stability through prudent fiscal policy, stabilising debt, reducing the budget deficit, and addressing income disparities. Measures such as social spending programs and targeted tax policies are likely included to address these disparities.
“South Africa is facing economic challenges that are affecting our fiscus; there are more people benefiting from tax revenue from personal income tax and VAT than there are people contributing.
"The rising living costs, stagnant wage growth, and high unemployment in South Africa are straining taxpayers, particularly the middle class, who are struggling to balance rising expenses with limited income growth.
"The government must prioritise fiscal discipline and address corruption to restore public trust. Creating a conducive environment for investment and job creation is crucial for expanding the tax base and ensuring long-term revenue sustainability," Banda said.
The National Treasury report indicates that the challenge facing South Africa is to strike a balance between generating sufficient revenue to fund essential services and ensuring that the tax burden remains equitable and sustainable. Failure to address this delicate balance could have dire consequences for the nation's economic and social fabric.
IOL