Cape town: Government has officially withdrawn the R20 billion tax increase for Value Added Tax (VAT) that was previously penciled in for the 2026 Budget, to provide inflationary relief to taxpayers. Tabling the 2026 Budget in Parliament on Wednesday, Minister of Finance Enoch Godongwana explained that the withdrawal was due to the tax system demonstrating resilience despite slow economic growth.

According to South African Government News Agency, for 2025/26, the gross tax revenue is revised up by R21.3 billion compared to the estimate in the 2025 Budget. Higher-than-expected net VAT, corporate income tax, and dividends tax collections improved the in-year outlook. As a result, the government has decided to withdraw the R20 billion in tax increases provisionally included in the May 2025 Budget. The improving fiscal position allows enough room to withdraw the proposed tax increases, without putting fiscal sustainability or economic activity at risk, the Minister said to Parliament in Cape Town.

Government is also proposing additional tax measures to ease the financial burden on households and businesses by adjusting personal income tax brackets and rebates fully in line with inflation. The national savings and investment rate is far below the levels needed to create generational wealth and support local investment in the economy. To encourage South Africans to save more, the government had proposed the tax-free annual investment limit be increased from R36 000 to R46 000 per year. Furthermore, the limit to retirement fund deductions should be raised from R350 000 to R430 000, allowing individuals to invest more each year on a tax-free basis.

In terms of VAT registration for small businesses, the government has increased the compulsory VAT registration threshold from R1 million to R2.3 million. Measures to support small businesses include raising the capital gains tax exemption for the sale of a small business for older persons from R1.8 million to R2.7 million. This applies to small businesses worth R15 million instead of the R10 million previously, enabling small business owners to receive more tax relief when they sell their businesses.

Consumers can expect to pay more for tobacco, alcohol, and petrol from 1 April 2026. Increases to certain taxes are unavoidable. For 2026/27, excise duties on tobacco will be increased in line with inflation, including excise duty on electronic nicotine and non-nicotine delivery systems. The tax on a 20-pack of cigarettes rises from R22.81 to R23.58, pipe tobacco rises by 28 cents per 25 grams, and cigarette tobacco by 87 cents per 50 grams. Cigars rise by R4.56 per 23 grams. The excise on alcoholic beverages also rises by inflation, with a 340 millilitre can of beer or cider increasing by eight cents, a 750 millilitre bottle of wine going up by 15 cents, and a 750 millilitre bottle of spirits increasing by R3.20.

In terms of fuel levies, the total increase will also be in line with inflation. The general fuel levy will go up by nine cents per litre for petrol and eight cents per litre for diesel, the carbon fuel levy will go up by five cents per litre for petrol and six cents for diesel, and the Road Accident Fund levy will increase by seven cents per litre.