Daily Archives: March 12, 2025

South Africa gets serious on tax collection: ‘billions owed to the state’

The South African Revenue Service (SARS) has been allocated R3.5 billion in the current financial year and an additional R4 billion over the medium term.

Tabling the 2025 Budget Speech on Wednesday, minister of finance Enoch Godongwana said broadening the tax base and improving the administrative efficiency of SARS allows government over time, to spread the tax burden more evenly and equitably.

With this budget allocation, SARS will focus on leveraging technology, data science and artificial intelligence to foster efficiency and transparency in tax administration while combating exploitation by criminal syndicates.

“By the end of February this year, SARS reported a significant increase in undisputed debt. This means billions of rands are owed to the state. The revenue collector has also detected 156 000 taxpayers who are not registered or have not filed despite their substantial economic activity.

“I call on all South Africans to comply with the law and support SARS in its endeavour to collect the revenues that enable government to fund and provide critical services. I also want to emphasise the importance of tax compliance.

“I thank all compliant taxpayers who pay their fair share of taxes. I also encourage those that are not compliant to do the right thing. The rewards of higher tax compliance and efficiency take time. Once again, the investments we make today in SARS will allow the collector the time to make improvements,” Godongwana said in Parliament.

Over the past five years, SARS has made significant progress in rebuilding and modernising its systems by shifting to online services and automating many of its processes to improve service, detect fraud and enhance compliance. 

“In 2025/26, SARS will focus on addressing the tax gap to improve revenue collection. This will be done by improving taxpayer compliance and trade facilitation by leveraging artificial intelligence and data science.

“SARS is deploying technologies to simplify its processes and enhance the single window platform to improve taxpayer and trader service.  Adopting scanning technologies and intelligent image analysis will significantly reduce inspection times through ports of entry,” according to the 2025 National Treasury Budget Review document. 

The traveller declaration system is being modernised to provide digital services to cross border travellers and state entities, reducing illicit financial flows and other risks.

Government revises proposed VAT increase for South Africa

In light of new and persistent spending pressures in health, education, transport and security, government has decided to raise value-added tax (VAT) by 0.5 percentage points in each of the next two years, which will bring VAT to 16% in the 2026/27 financial year.

“These have to do with the government properly fulfilling its service delivery mandate. After careful consideration, the government has decided to fund these.

Deferring the funding of these sectors further would compromise the government’s ability to meet its constitutional obligations to the people,” minister of finance Enoch Godongwana said on Wednesday.

The first 0.5 percentage point increase in the VAT rate will take effect on 1 May 2025 and the second 0.5 percentage point increase will take effect on 1 April 2026.

“This decision was not made lightly. No Minister of Finance is ever happy to increase taxes. We are aware of the fact that a lower overall burden of tax can help to increase investment and job creation and also unlock household spending power.

“We have, however, had to balance this knowledge against the very real and pressing service delivery needs that are vital to our developmental goals and which cannot be further postponed,” the minister told Parliament, as he delivered the Budget Speech.

He explained that government thoroughly examined alternatives to raising the VAT rate.

“We weighed up the policy trade-offs involved, including increases to corporate and personal income taxes. Increasing corporate or personal income tax rates would generate less revenue, while potentially harming investment, job creation and economic growth.

“Corporate tax collections have declined over the last few years, an indication of falling profits and a trading environment worsened by the logistics constraints and rising electricity costs. Furthermore, South Africa’s corporate income tax collections are already higher than most of our peer countries.

“On the other hand, an increase to the personal income tax rate would reduce taxpayers’ incentives to work and save. Our top personal income tax rate and our personal income tax collections as a percentage of GDP are far higher than those of most developing countries. Increasing it is therefore not feasible,” he said.

Godongwana said taking on additional debt to meet the spending pressures was also not feasible.

“The amount is simply too large. The cost of borrowing would be unaffordable. Our sub-investment credit rating would also make this level of borrowing costlier and put us at risk of even further downgrades.

“VAT is a tax that affects everyone. By opting for a marginal increase to VAT, its distributional effect and impact were cautiously considered. The increase is also the most effective way to avoid further spending cuts and to enable us to extend the social wage,” he said.

Cushioning households

While government has decided to increase the VAT, it will implement measures to protect vulnerable households.

“The government is very aware of the cost-of-living pressures faced by households, including high food and fuel prices and rising electricity and transportation costs. This is why we are taking concrete steps to protect vulnerable households,” the minister said.

This will be done through providing social grant increases that are above inflation; expanding the basket of VAT zero-rated food items to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry and other animals as well as by not increasing the fuel levy for another year, saving consumers around R4 billion.

The VAT system currently zero rates 21 essential food items in an effort to make them more affordable for lower-income households.

Government has proposed to extend the list of zero-rated basic foods to mitigate the effect of the VAT rate increases.

“From 1 May 2025, zero rating will be extended to include edible offal of sheep, poultry, goats, swine and bovine animals; specific cuts such as heads, feet, bones and tongues; dairy liquid blend; and tinned or canned vegetables

“Other tax proposals include no inflation adjustments to medical tax credits, above-inflation increases on alcohol and tobacco excise duties, and diesel refund relief for primary sectors,” the minister said.

Personal income tax brackets and rebates will not be adjusted for inflation in 2025/26.

“The personal income tax proposals are effective from 1 March 2025 and expected to raise revenue of R19.5 billion. No changes to medical tax credits are proposed – these will remain at R364 per month for the first two beneficiaries and at R246 per month for the remaining beneficiaries,” the 2025 National Treasury Budget Review said.

Godongwana reveals economic growth projections for South Africa

South Africa’s economy is projected to grow at an average of some 1.8% from 2025 to 2027, despite sluggish growth over the past decade.

This is according to Finance Minister Enoch Godongwana who delivered the Budget Speech in Parliament on Wednesday.

“[The] truth is our economy has stagnated for over a decade. In that time, Gross Domestic Product [GDP] growth has averaged less than 2%, far below the level required to meet our expanding list of needs.

“In 2024, the economy grew by only 0.6%. Over the medium term, GDP growth is projected to average 1.8%.

“To meet our goals of redistribution, redress and structural transformation, the economy needs to grow much faster and in an inclusive manner. This is the central objective of the current administration,” Godongwana said.

In the 2025 Budget Review released by the Department of National Treasury, the department set out the reasoning for the projection.

“The medium-term outlook is supported by higher investment and household consumption, aided by a stable inflation outlook, moderate employment gains and improving household balance sheets. 

“Continued easing of structural constraints will support the economy by fostering additional investment – including in infrastructure,” the department explained.

Real economic growth is forecast to reach 1.9% while the consolidated budget deficit is expected to contract from 5% of GDP in 2024/24 to some 3.5% in 2027/28.

Real GDP is projected to grow to 1.9% in 2025, down to 1.75 in 2026 and back up to 1.9% in 2027.

“The growth outlook underscores the opportunity to move to a significantly faster economic growth path through sustained progress in raising investment and productivity.

“The outlook will be supported by stable macroeconomic policies, improved efficiency and competitiveness driven by structural reforms, enhanced state capability to deliver services and improved infrastructure investment over the medium term,” the review said.

Government’s plan to bolster growth and employment is anchored by:

  • Maintaining macroeconomic stability and reducing volatility to reduce the cost of living and encourage investment.
  • Implementing structural reforms to increase efficiency and promote a competitive economy, while addressing constraints to job creation and employment.
  • Building state capability by identifying and solving problems in the delivery of core functions, supported by digital transformation.
  • Supporting growth-enhancing public infrastructure investment to increase productivity and long-term economic prospects.

“Medium-term growth will be underpinned by household consumption on the back of rising purchasing power, moderate employment recovery and wealth gains. Continued investments in renewable energy and easing structural constraints are expected to support higher investment. 

“Key factors for achieving faster economic growth and creating much-needed jobs include greater collaboration with the private sector in energy and transport, rapid implementation of structural reforms, easing of regulatory constraints and increased infrastructure investment,” the department said.

Inflation is expected to rise slightly as the 0.5% value-added tax (VAT) increase takes its toll on food prices.

“Consumer inflation is projected to average 4.3% in 2025 and 4.6% in 2026, picking up slightly as the [VAT] increase pushes up prices. 

“The VAT effect is seen mainly in core inflation, which, after averaging 4.3% in 2024, is projected to rise to 4.6% in 2026. Lower global crude oil prices are expected to support muted fuel price inflation.

“Risks to the inflation outlook include upward pressure on food prices from adverse weather patterns and events resulting from climate change. Geopolitical tensions continue to cloud the fuel price outlook,” National Treasury explained. 

On the international stage, global growth is expected to stabilise at some 3.3% in 2025 and 2026.

“In the short term, growth in the United States will benefit from robust consumption and investment, while China’s expansion will be supported by fiscal measures to counter investment weakness. 

“Growth in Sub-Saharan Africa, the Middle East and Central Asia is expected to increase in 2025 despite the drag from commodity production cuts. 

“However, geopolitical tensions – including the threat of sharpening trade disputes – alongside slow productivity gains and trade and supply chain adjustments could limit growth across regions,” National Treasury noted.

Globally, headline inflation is projected to slow to some 4.2% 2025 and 3.5% in 2026.

“[This will be] driven by declining energy prices and cooling labour markets. Advanced economies are expected to return to their inflation targets faster than emerging economies, supported by moderating energy costs and improved labour supply.

“Inflation trends vary in emerging economies, with food inflation persisting in Sub-Saharan Africa, while China is experiencing subdued inflation given weak domestic demand,” the department said.

Roadblock for South Africa’s property market growth

House price growth, especially outside of the Western Cape, has largely been dismal over the last two years. After growing at rates of between 5% and 9% in the 2020-2022 period, it declined to as low as 0.5% by mid-2024, notes Samuel Seeff, chairman of the Seeff Property Group.

He said that interest rates have had a major impact on the property market, and on house prices. Interest rates also impact the ability of people to afford their own homes and are an important measure of the health of the housing market, and the broader economy.

When interest rates are high and incomes remain stagnant, buying property becomes increasingly difficult. This dampens demand, resulting in less competition for properties, which helps keep prices lower.

Conversely, if the interest rate comes down and incomes grow, then property becomes more affordable, it becomes easier to obtain home loans, and more people can buy property.

Competition for properties on the market increases, and buyers are then inclined to offer higher prices, resulting in higher price growth.

Seeff said this is well demonstrated when looking at house price trends since March 2020 with the onset of the Covid pandemic. In March 2020, the interest rate was at 9.75%. The Reserve Bank then introduced a series of rate cuts between March and July bringing the prime rate down to 7%.

This immediately made properties more affordable, bringing down the monthly repayment on a R1 million home loan over 20-years to R7,753 per month. The consequent increase in demand resulted in national house price growth for the 2020-year of 4.10%.

The subsequent incremental increases in the interest rate from late 2021 then brought the prime rate to 11.25% by May 2023. This resulted in the monthly repayment on this R1 million home loan increasing to R10,493 per month, thus an additional R2,740 per month.

Property affordability declined, and with that the demand for property in the market. National house price growth consequently declined to just 0.7% for the 2023-year, according to the StatsSA House Price Index.

While further interest rate cuts since late last year has brought the prime rate down to 11%, the repayment on the R1 million home loan has only come down to R10,322, thus resulting in a saving of R171 per month.

National house price growth remained flat at about 0.8 for the 2024-year, according to FNB data.

While there has been an increase in activity in the property market, and confidence in the market has soared to the highest levels in a decade according to an ABSA survey, data from FNB shows that house prices have only increased by 1.1% in January. “Clearly more rate cuts are needed,” said Seeff.

Seeff says there is ample reason for the Reserve Bank to provide further interest rate relief to consumers, the economy and property market next week. The interest rate is still well above what it was in early 2020, i.e. before Covid, yet inflation is at around 3.2%, near the bottom of the Reserve Bank’s target range of 3%-6%.

A lower interest rate will provide a vital boost to the economy and housing affordability, drive higher demand, and consequently boost house price growth, he said.

Strong house price growth is vital to encourage further investment, and development growth. “A healthy housing market with strong growth delivers a multiple of economic benefits, including boosting economic and jobs growth as well as government revenue in the form of taxes.”

Growthpoint interims boosted by V&A Waterfront

Growthpoint Properties has announced its financial results for the six months ending 31 December 2024 (HY25), showcasing solid growth across its South African and international portfolios, with a notable improvement in key financial metrics.

The group’s distributable income per share (DIPS) increased by 3.9%, reaching 74.0 cents per share (HY24: 71.2 cps).

This growth was primarily driven by enhanced performance in the South African portfolio, including like-for-like rental growth, improved expense efficiencies, and lower vacancies in the logistics and industrial sectors.

–Net Property Income: South Africa’s net property income rose by 6.2% to R2.9 billion (HY24: R2.7 billion), reflecting continued improvements in property operations and occupancy rates.
–Dividend Growth: The company declared a 3.7% increase in its interim dividend, amounting to 61.0 cents per share.
–Loan to Value (LTV): Growthpoint’s SA REIT loan-to-value ratio improved to 40.8%, compared to 42.3% at the end of FY24.

The iconic V&A Waterfront delivered a strong 16.6% like-for-like increase in net property income, benefiting from the boost in both domestic and international tourism.

Growthpoint’s 50% share of distributable income from the V&A increased by 4.5%, to R398.2 million.

The property group said it has significantly reduced its exposure to underperforming sectors, including office properties, and is actively exiting deteriorating business districts.

During the period, the company disposed of 12 properties for R589.4 million, including two office properties, which reflects a profit of R7.4 million on the book value.

Over the last decade, Growthpoint has sold a total of R5.2 billion worth of B and C-grade office assets, with continued focus on the logistics sector.

The logistics and industrial sectors have performed particularly well, with vacancies decreasing to 3.5%, the lowest since 2018. Growthpoint’s commitment to modern logistics warehouses has also contributed to positive rent reversions of 0.9%, alongside in-force escalations of 7.4%.

The group has prioritised reducing its reliance on the national grid and addressing water supply challenges. The company completed R117.3 million in solar installations during the period, bringing the total installed solar capacity to 52.5 MWp.

Furthermore, Growthpoint has entered into a landmark power purchase agreement (PPA) with Etana Energy for the acquisition of 195 GWh of renewable energy annually, with phased implementation starting in FY26.

Despite ongoing global economic challenges, Growthpoint said it remains optimistic about its future performance, supported by its focus on high-growth sectors, including logistics and the Western Cape region.

The company anticipates further stabilisation in the South African office sector, particularly in Cape Town and Umhlanga Ridge, while the logistics sector is expected to outperform other property types.

The V&A Waterfront, which has benefitted from the tourism resurgence, is expected to continue its growth trajectory, though redevelopments in key areas may temporarily affect performance in FY25.

The group’s share price responded positively to the results on Tuesday, adding 3.5% in afternoon trade, with the group up 6% in the year-to-date and up nearly 17% over the past 52 weeks.

Vukile scales up Spanish investment with Valencia mall acquisition

Vukile Property Fund, through its 99.5% held Spanish subsidiary Castellana Properties, has acquired the largest shopping centre in Spain’s Valencia province, the Bonaire Shopping Centre, from retail REIT Unibail-Rodamco-Westfield.

The purchase consideration of EUR305 million represents an entry yield of approximately 7%, according to the specialist retail real estate investment trust (REIT).

The acquisition of the centre, considered a Top 10 shopping centre asset in Spain, was initially delayed due to torrential flash flooding in the Valencia Region in October 2024.

As part of the centre’s reinstatement, Unibail-Rodamco-Westfield fully refurbished the ground floor’s common areas and retail units, with many retailers simultaneously taking the opportunity to upgrade their stores and introduce new concepts.

Bonaire Shopping Centre reopened on 13 February 2025.

The acquisition is being funded with the EUR200 million proceeds from the sale of Castellana’s stake in Lar España.

“We made a tremendous profit of around EUR80 million on the Lar España trade and to redeploy the proceeds so quickly into such a high-quality asset and ensure no cash leakage is testament to our team’s deal making expertise,” said Laurence Rapp, CEO of Vukile Property Fund.

Rapp also pointed to Castellana’s strategic expansion into Portugal, where it has acquired four shopping centres since September 2024, funded with proceeds from the R1.5 billion raised by Vukile in September 2024.

As part of the acquisition of Bonaire, Castellana has received an 18-month net operating income (NOI) guarantee. The centre currently has ample parking readily available, and its underground car park is expected to be reinstated and reopen by mid-2025 at no additional cost to Castellana.

Bonaire Shopping Centre is in Valencia, the third largest city, fourth most popular tourist region and third most populous residential area in Spain, boasting consumers with incomes well above the national average.

The mall boasts above-market sales density and footfall averages, according to Vukile, and a 99% long-term occupancy rate with a diversified mix of highly attractive brands.

Tenants include six Inditex fashion brands including Zara, as well as Primark, JD Sports, Cinesa, Mango, H&M and Fnac, to name a few. Bonaire also features a top-floor leisure, food and beverage area that was refurbished in 2016.

The 138-store, 55,800sqm gross lettable area (GLA) centre acquired by Castellana is linked to an Alcampo hypermarket, which takes the total property to 78,000sqm. Further, Bonaire is part of a powerful retail node of 135,200sqm and 151 stores, including Leroy Merlin, Decathlon and leasing Scandinavian furniture retailer JYSK.

For Vukile, the deal scales up its Spanish investment. From a zero base in July 2017, following the Bonaire Shopping Centre acquisition approximately two-thirds of Vukile’s assets will be offshore in the Iberian Peninsula, in the high-growth, attractive markets of Portugal and Spain.

Sluggish start for REITs in 2025

South Africa’s Real Estate Investment Trust (REIT) sector showed a recovery in February, rebounding by 1.2% after the price declines seen in January.

This return outpaced the broader equity market, which remained flat, and the bond market, which posted a modest 0.1% gain.

Despite this bounce-back, the sector has still posted a 2.5% decline year-to-date, underperforming both the equity and bond markets.

According to Ian Anderson, head of Listed Property and portfolio manager at Merchant West Investments as well as compiler of the SA REIT Association’s monthly Chart Book and Richard Henwood, portfolio manager at Merchant West Investments, the overall investment outlook for the sector remains positive for 2025.

They believe that investors can expect a modest improvement in property fundamentals along with the possibility of lower interest rates.

This outlook is supported by recent developments, such as a 25-basis point rate cut by the South African Reserve Bank, the formation of a Government of National Unity, a reduction in loadshedding and the introduction of the two-pot retirement system at the end of 2024.

With these factors in mind, the sector is projected to see average growth in distributable income of 3% to 5% – a positive turnaround after three years of stagnation.

However, Anderson and Henwood caution that the market may face increased volatility due to global geopolitical tensions, particularly in relation to US President Donald Trump’s ongoing threats of higher tariffs, which could fuel inflation and impact economic growth globally.

During the reporting period, volatility remained elevated across global financial markets, with heightened concerns over geopolitical risks.

The potential for increased tariffs, especially on countries like China, Mexico, and Canada, could create inflationary pressures that complicate central bank efforts to cut interest rates further in 2025.

In addition, weaker economic data from the US in late February raised concerns over the future growth prospects of the world’s largest economy.

In South Africa, the 2025 Budget Speech was delayed after cabinet rejected proposed fiscal measures, including a 2% VAT increase, further contributing to uncertainty in the market.

Amid these challenges, individual companies in the REIT sector have shown varying degrees of success.

For example, Burstone’s partnership with TPG Angelo Gordon saw the acquisition of logistics assets worth A$280 million in Australia, while Dipula Income Fund reported strong growth in retail tenant turnover and improvements in operating metrics.

Equites Property Fund also remains optimistic, forecasting stable dividends and a reduction in its loan-to-value ratio.

Overall, while the South African REIT sector continues to face challenges, particularly from global uncertainties, the sector’s fundamentals appear poised for gradual improvement.