Finance Minister Enoch Godongwana delivered the 2026 Budget speech on Wednesday, 25 February, remaining steadfast in his earlier assurances that the government had no plans to introduce major tax changes in this year’s Budget.
Stronger-than-expected revenue collections (largely attributable to the strong performance of South African assets) paved the way for no major tax increases and upward inflationary adjustments to all personal income tax brackets, thresholds, rebates and medical aid tax credits. This provides welcome real income tax relief for individuals, which is something to celebrate following two consecutive years of no adjustments.
Read our Tax on investments summary for 2026/2027.
Measures to encourage investing
The Minister acknowledged that the national savings and investment rate is far below the levels needed to create generational wealth. To encourage South Africans to invest more, the annual limit for tax-free investment accounts will increase from R36 000 to R46 000 per year – although there was no mention at this stage of the lifetime limit increasing beyond R500 000. Meanwhile, the annual maximum tax-deductible limit for retirement fund contributions will be raised from R350 000 to R430 000 – a boost to retirement investors.
In other positive news for local investors looking to diversify offshore, the single discretionary allowance for individuals has been increased from R1 million per calendar year to R2 million per calendar year.
When it comes to unit trust investments, following public consultation after the publication of its discussion paper on the taxation of collective investment schemes (CIS) in 2024, National Treasury will release a response document with revised proposals for further consultation. The draft recommendation proposes that all investment returns generated by regular unit trusts and retail investment hedge funds be taxed as capital – affirming the prevailing practice applied by many investment managers, including Allan Gray. This is to encourage savings and to provide the industry with certainty regarding the tax treatment of these vehicles, where previously there has been ambiguity.
Other tax relief
Higher revenues have provided space for Treasury to withdraw a proposed R20 billion tax increase included in the 2025 Budget, and to keep the corporate tax rate and the value-added tax (VAT) rate unchanged. As a result, the government will not raise additional revenue through tax proposals. Nevertheless, a future VAT increase remains a possibility.
Capital gains tax
The annual capital gains tax (CGT) exclusion will increase from R40 000 to R50 000, and on death from R300 000 to R440 000. The primary residence exclusion will increase to R3 million. Additionally, the annual donations tax exemption will increase from R100 000 to R150 000 annually. These amendments take effect from 1 March 2026.
Value-added tax
On the upside, effective 1 April 2026, the compulsory VAT registration threshold will increase from R1 million to R2.3 million to support small businesses.
Keep your tax affairs in order
More generally, a VAT rate increase remains a possibility in future years given its effectiveness to raise instant revenue. Following a spectacular showdown in 2025, which included three attempts to get the Budget over the line, most commentators expected the VAT rate to remain unchanged.
But this VAT “reprieve” may come at a cost. Low economic growth and a stretched tax base have placed VAT collections in the spotlight, with the focus firmly shifting to what is already owed, as opposed to unpalatable rate adjustments. South African Revenue Service (SARS) revenue collection performance data as at December 2025 confirmed a staggering undisputed tax debt of R523 billion, with VAT emerging as the single-biggest contributor at R162 billion.
Investing in strengthening the capacity of SARS is bearing positive results and remains a key focus of government. All eyes (and pressure) therefore remain on SARS to enhance enforcement, ramp up debt collections and improve administrative efficiency to secure sustainable revenue, while broadening the tax base. Recent SARS actions, including enhancing collaboration with banks and hiring additional legal professionals to pursue civil judgements, are expected to increase collections.
With the financial year end approaching, we have noticed SARS intensifying collection efforts, ensuring targets are met. These figures serve as a warning to taxpayers that SARS is under pressure and will continue to aggressively pursue tax debt owed. Taxpayers must take heed by ensuring their tax obligations are met and that they remain compliant.
Upside for South Africans
After years of belt-tightening, the 2026 Budget adjusts various tax instruments for inflation to provide welcome relief for taxpayers, assist small businesses and encourage savings. While debt remains high and service delivery weak, we are at least seeing a shift in the right direction. On the whole, the 2026 Budget provides good news for South African citizens.