VAT To Increase To 16% By 2026: What It Means For South Africans

Finance Minister Enoch Godongwana revealed in his 2025 Budget Speech that South Africa’s value-added tax (VAT) rate will increase by 0.5 percentage points in both 2025/26 and 2026/27, bringing it to 16% by 2026.

Relief Measures for Lower-Income Households

To soften the impact, the government plans to expand the list of VAT zero-rated essential food items and increase social grants above inflation. Additionally, fuel levies will remain unchanged to prevent further strain on consumers.

Where Will the Extra Money Go?

According to Dr. Duncan Pietersen, Director-General for National Treasury, the VAT hike will help fund:

•  Early childhood development programs
• Hiring more teachers, doctors, and frontline workers
• Rebuilding the commuter rail system

How Much Revenue Will It Generate?

The tax increases are expected to raise R28 billion in 2025/26 and R14.5 billion in 2026/27. This includes revenue from the VAT hike and the government’s decision to not adjust personal income tax brackets for inflation.

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Godongwana acknowledged that the Value Added Tax increase will push up inflation, with core inflation rising from 4.3% in 2024 to 4.6% in 2026. However, lower global crude oil prices are expected to keep fuel price inflation in check.

Despite these tax hikes, Godongwana emphasised that the decision was not made lightly, balancing the need for revenue with the burden on consumers.

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