South Africa is on the brink of a tax revolt as the government considers new tax hikes to cover a widening budget shortfall. Economists and business leaders warn that increasing taxes on already overburdened households and businesses could backfire, leading to widespread tax avoidance and evasion.
Government Faces Tough Choices After VAT Hike Rejection
Finance Minister Enoch Godongwana is set to present a revised budget on March 12, 2025, after his initial plan to raise R60 billion through a VAT hike to 17% was scrapped due to political backlash. The government now faces difficult choices, with new tax measures expected to be introduced.
Possible tax hikes include:
- Fuel levies increase
- Personal income tax (PIT) hike
- Corporate income tax (CIT) hike
- Smaller VAT increase (0.5%)
- Wealth tax on high-net-worth individuals
While these measures aim to boost revenue, business groups argue that South Africa’s tax base is already stretched to its limit.
Experts Warn: Higher Taxes Could Lead to Lower Revenue
Khulekani Mathe, CEO of Business Unity South Africa (BUSA), has warned that further tax hikes could stifle economic growth and drive tax avoidance.
“Increases in PIT and other fees will weaken consumer spending, reduce disposable income, and erode investor confidence,” Mathe said.
Economists point to the Laffer Curve, a concept that suggests that beyond a certain point, higher taxes lead to lower government revenue as compliance drops and economic activity slows.
According to Aluma Capital chief economist Frederick Mitchell, South Africa may already be past this point. He urged the Treasury to consider the risk of overburdening taxpayers, as this could result in fewer people complying with their tax obligations.
South Africa’s ‘Quiet Tax Revolt’ Already Underway
While a tax revolt is often associated with refusing to pay taxes, South Africa’s version is more subtle.
- Many high-income earners and businesses find legal ways to minimize their tax burden.
- Thousands of wealthy South Africans have ended their tax residency, with SARS losing R3 billion in 2024 due to tax emigration.
- SARS is still owed R800 billion in unpaid taxes, highlighting ongoing challenges in tax collection.
South Africa relies on a small group of taxpayers to fund the country’s budget. According to Treasury data:
- Just 1.5% of South Africans (980,000 people) pay 60.9% of all personal income tax.
- Around 235,000 people contribute a third of all income tax.
Increasing taxes on this small base risks driving even more people into tax avoidance or out of the system entirely.
What’s the Solution?
Instead of raising taxes, experts suggest:
- Expanding the tax base by improving tax compliance and cracking down on illicit trade.
- Strengthening SARS enforcement to ensure fair tax collection.
- Boosting economic growth to generate more taxable income.
BUSA’s Mathe argues that long-term reforms are needed rather than short-term revenue fixes. “We need structural economic reforms that expand the tax base, not just keep squeezing the same taxpayers,” he said.
As South Africa awaits the revised budget, the government faces a difficult balancing act: raising revenue without triggering a full-blown tax revolt.
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