This year’s Budget Speech, delivered by the Minister of Finance on 25 February 2026, held many positive developments, which were good news for businesses and taxpayers of South Africa. The key change was that the government withdrew the R20 billion tax increase under consideration and provided some much-needed relief to various taxpayers.

However, it should be noted that the budget remains a proposal and must still be formally debated and voted on in Parliament.

In a nutshell, personal income tax brackets and medical tax credits will be adjusted for inflation for the first time in three years, there are no major tax hikes, and great support for small businesses.

SOME OF THE HIGHLIGHTED CHANGES ARE…

• The R20 billion tax increase has been withdrawn.
• The annual tax-free savings investment incentive has been increased from R36 000 to R46 000.
• Personal income tax brackets and medical tax credits will be fully adjusted for inflation.
• The retirement fund deduction limit increases from R350,000 to R430,000.
• The primary residence exclusion for CGT increases from R2 million to R3 million.
• Tax thresholds and limits are also adjusted for inflation to assist small businesses and encourage savings.
• Fuel levy increase of 9c/l for petrol and 8c/l for diesel.
• Road Accident Fund levy increases by 7c/l to R2.25/l from 1 April.
• The carbon fuel levy will increase to 19c/l for petrol and 23c/l for diesel from 1 April
• VAT: No change to the rate, however, greater support for small businesses with the registration threshold updated for the first time since 2009, from R1 million to R2.3 million.
• Corporate tax: No change
• Sugar tax: No change.
• Sin tax: Alcohol and tobacco increase by 3.4%

Some encouraging news is that South Africa obtained its first credit rating upgrade in 16 years and was removed from the FATF grey list. Revenue collections for 2025/26 have been revised upwards by R21.3 billion due to stronger VAT, corporate income tax and dividends tax collections.

The withdrawal of the R20 billion tax increase proposal, combined with inflation adjustments to personal income tax thresholds, means the overall tax burden for individuals and small enterprises will not increase materially. However, taxpayers should be aware that SARS continues to intensify compliance and enforcement activities, particularly in the areas of transfer pricing, trusts, cryptocurrencies, cross-border transactions and illicit trade.

Action Tips to Consider

• Review your tax planning strategy early in the year — don’t wait until filing season.
• Accurate bookkeeping and timely submissions are no longer optional, but critical.
• Make sure your business is registered under the most beneficial tax structure, so it does not miss out on tax relief.
• Review your payroll compliance to avoid any mistakes, as this is one of the most common audit triggers.
• Plan your cash flow around provisional payments, so you will not be caught off guard and under budgeted.
• Taxpayers with offshore crypto holdings must ensure these are properly disclosed.

If you need assistance reviewing your tax position, preparing financial statements, or ensuring full compliance with SARS requirements, Dirmeik Consulting is ready to support you — professionally, practically and proactively. You can find our latest Tax Guide here.

Let’s make this financial year one of clarity, compliance and growth.

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VAT (Value Added Tax)

Considering the impact of a VAT adjustment, VAT will be increased from 15% to 15.5% on 1 May 2025 and to 16% on 1 April 2026. More VAT zero-rated foods will be added to relieve poorer households, as will social grants be increased by more than the inflation rate. The fuel levy will also remain unchanged.

Transfer Duty

The Minister announced that the monetary thresholds for transfer duty will be adjusted upwards by 10% to counter inflation. As such, purchasing a property with an acquisition value of R1,210,000 or less will not attract the payment of transfer duty. This threshold adjustment, proposed to take effect on 1^st April 2025, will reduce the associated cost of purchasing property and attract more prospective buyers.

Personal income tax and medical tax credits

For the second year running, personal income tax brackets, individual rebates, and medical tax rebates remain unchanged and will not be adjusted for inflation.

Other taxes

Offering some relief to stressed taxpayers, the Minister did not propose increases to capital gains tax, dividends tax, estate duty, corporate income tax, or donations tax. However, the monetary thresholds for tax-free investments and interest income exemptions remain unchanged.

The carbon tax on fuel will increase by 3 cents. This effectively raises the petrol carbon tax from 11 cents to 14 cents per liter and from 14 cents to 17 cents in the case of diesel.

Increase of 6.75% in excise duties on alcoholic beverages.

6.75% rise in excise duties on cigars and pipe tobacco and 4.75% on cigarettes and other tobacco products.

Tax Rebates for Natural persons remain unchanged, as follows:

• Primary: R17 235
• Secondary (Persons 65 and older): R9 444
• Tertiary (Persons 75 and older): R3 145

Thresholds for Natural persons:

• Below age 65: R95 750
• Age 65 to below 75: R148 217
• Age 75 and over: R165 689

For further information on how this budget affects you personally or your business, contact Dirmeik Consulting today.

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It is important to remember that accessing retirement funds early means you have less available at retirement and impacts your tax-free savings portion. It affects the ability of your retirement funds to benefit from compound interest and grow at a rate that will ensure you have enough to retire comfortably.

Although commonly referred to as the two-pot retirement system, from 1 September 2024, your retirement contributions were automatically divided into three pots:

1. Savings pot – One-third of new contributions will go into the savings pot, and will be accessible before retirement, once a tax year, for emergencies. 10% of the market value of your account on 31 August 2024 was seeded from your vested pot, but was subject to a maximum of R30 000.
2. Retirement pot – Two-thirds of new contributions will go into the retirement pot, and can’t be touched before retirement, except under exceptional conditions.
3. Vested pot – Houses all your retirement savings up to 31 August 2024 and will stick to the existing rules and regulations.

Pension fund members are now allowed to withdraw from the savings pot of their Retirement funds. To apply, you will need to instruct your Fund so they can request the required tax directive from SARS.  This means that only registered taxpayers can benefit from this new retirement scheme.

As contributions made to your retirement funds are not taxed, tax will be deducted from any amount withdrawn at the rate applicable to the individual’s taxable income. However, those intending to withdraw funds must ensure that they have no outstanding debt owing to SARS, as this will be deducted from the withdrawal amount.

Once a withdrawal amount has been decided on, which has a minimum of R2000, it will take up to 48 hours for SARS to issue the directive. Before a final amount is paid to the applicant, the pension fund will be informed to deduct any outstanding debt on behalf of SARS before the payout is made to the member. Remember that you can also only withdraw once a year, so choose the amount wisely.

A tax calculator is available on SARS e-Filing website to assist you with an illustrative amount of what you can expect as a payout.  However, all relevant and accurate information must be provided to get a clear estimate of the payout.

The tax implications for pension fund members who earn below the tax threshold and then make a withdrawal from the savings pot will only be determined during the annual Filing Season when taxable income will be taxed at 18%. As the sum of the withdrawal will be added to your employment and other income, this could push you into a higher tax bracket, leaving you to have to pay more tax. Any over or under-deduction of tax from a savings-pot withdrawal will be settled in the taxpayer’s next assessment during the annual submission of their ITR12 return.

If a member chooses not to withdraw from their savings pot before retirement, the remaining funds will be taxed as a lump sum benefit upon retirement. These tax rates are generally lower than the marginal tax rates applied to withdrawals before retirement.

However, if you are already a pensioner or aged 55 and over as of 1 March 2021, who did not opt-in when contacted, you will not be eligible to apply for a savings pot withdrawal.

Existing members can still withdraw a cash lump sum of up to R550 000. However, this R550 000 is a cumulative withdrawal total over your lifetime, which means this tax benefit could be eroded by pre-retirement withdrawals.

To ensure you fully understand the tax and other implications of early retirement fund withdrawals in the short term and at retirement, seek professional advice by contacting us at Dirmeik Consulting.

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