Finance Minister Enoch Godongwana delivered South Africa’s 2026 Budget on Wednesday, 25 February 2026. After several years of limited tax relief, this year’s Budget introduces several inflation-linked adjustments that should provide welcome support to individual taxpayers and ease certain pressures on small businesses. While public debt remains elevated (gross loan debt is projected to peak at 78.9% of GDP in 2025/26) and economic growth remains modest, the overall direction is more constructive. On balance, the 2026 Budget is a more taxpayer-friendly Budget, although fiscal pressure and enforcement risks remain.
Summary
Stronger-than-expected revenue collections have given the National Treasury room to avoid broad-based tax increases in the current year. The previously proposed R20 billion in additional tax measures has been withdrawn, while personal income tax brackets and rebates have been adjusted in line with expected inflation of 3.4%. Medical tax credits have also been increased for the first time in two years, providing welcome relief to households.
For now, the VAT rate remains unchanged. However, this should not be mistaken for a permanent reprieve. With economic growth still subdued and the tax base under pressure, VAT remains one of the most effective tools available to raise revenue, which means future increases cannot be ruled out. In the meantime, the policy focus appears to be shifting toward improved tax administration, stronger collections, and tighter enforcement rather than immediate rate hikes.
SARS is expected to remain central to this strategy. Revenue collection has improved, and SARS’ compliance efforts had already contributed R11.6 billion to the improved fiscal outcome by the end of January 2026. This reinforces the message that enforcement, debt recovery, and compliance monitoring are likely to remain a major focus area going forward. Taxpayers should therefore ensure that their tax affairs are up to date – something our partner company, Parity Chartered Accountants, can assist you with.
Main takeaways
- Offshore investing: The single discretionary allowance for individuals has increased from R1 million to R2 million per calendar year, creating greater flexibility for clients looking to diversify internationally.
- Retirement contributions: The section 11F deductible retirement contribution remains 27.5% of taxable income, with the annual cap increased from R350 000 to R430 000.
- Tax-free savings accounts: The annual contribution limit has increased from R36 000 to R46 000, while the lifetime limit remains R500 000.
- Capital gains tax and estate planning: With effect from 1 March 2026, the annual CGT exclusion increases from R40 000 to R50 000, the CGT exclusion on death rises from R300 000 to R440 000, the primary residence exclusion increases to R3 million, and the annual donations tax exemption increases from R100 000 to R150 000.
- No immediate broad tax increase: Treasury has withdrawn the previously proposed R20 billion in additional tax measures, and both the corporate income tax rate and VAT rate remain unchanged for now.
- VAT and small businesses: The compulsory VAT registration threshold will increase from R1 million to R2.3 million, which should reduce the compliance burden for smaller businesses.
Other notable changes
- Medical tax credits: The monthly medical tax credit increases from R364 to R376 for the first two beneficiaries, and from R246 to R254 for each additional beneficiary.
- Fuel levies: The general fuel levy increases by 9 cents per litre for petrol and 8 cents per litre for diesel, which will place some additional pressure on transport and household costs.
- Excise duties: Excise duties on alcohol and tobacco increase by 3.4%, broadly in line with inflation.
What this means for clients
The 2026 Budget creates a more favourable environment for tax planning, saving, and long-term wealth structuring. In addition, the stronger rand over the past 12 months has created a potentially attractive window for investors considering offshore diversification. Since 27 February 2025, the rand has strengthened by 13.65% against the US dollar, moving from R18.46 to R15.94, and by 7.76% against the British pound, moving from R23.31 to R21.50. This dovetails well with the increase in the single discretionary allowance from R1 million to R2 million per calendar year.
For clients looking to build offshore exposure, the combination of improved exchange rates and higher annual offshore allowances presents a great opportunity to gradually diversify into US dollars, pounds sterling, and other hard currencies.
Higher retirement contribution limits, an increased tax-free savings allowance, expanded offshore flexibility, and more generous CGT and estate planning thresholds all provide meaningful planning opportunities. At the same time, the clear policy direction from government and SARS is that compliance will be monitored more closely and tax debt will be pursued more aggressively. This makes now an appropriate time to review your tax position, savings strategy, offshore structures, and broader financial plan to ensure that you are making full use of the available relief while remaining fully compliant.
