Finance minister Enoch Godongwana, is set to present the 2025 Budget Speech in the National Assembly on Wednesday, 19 February.
This eagerly anticipated speech will provide key insights into the government’s fiscal strategy for the coming year and beyond.
In January 2025, the South African Reserve Bank (SARB) released optimistic economic growth forecasts for the period 2025-2027, projecting an average growth rate of 1.9% annually.
Financial services group PwC predicts that the National Treasury will also project robust economic growth over the medium term, though they caution that a more conservative outlook on economic growth would provide a more realistic picture, especially regarding fiscal revenues.
Historically, fiscal budgets have tended to overestimate growth, and PwC forecasts for real GDP growth range from 0.5% in 2024 to 1.6% by 2027, while nominal GDP growth is projected between 4.9% and 6%.
Tax Revenue Performance and Predictions
PwC predicts that tax revenue collection for the 2024/25 fiscal year will likely underperform the original budget estimates, as well as the revised projections presented in the Medium Term Budget Policy Statement (MTBPS) 2024.
National Treasury initially forecasted total tax revenues of R1,863 billion for Budget 2024 but later revised this figure downward to R1,841 billion.
PwC anticipates that actual collections could fall approximately R10 billion short of this revised estimate, mainly due to weaker-than-expected VAT revenues.
Looking ahead to the 2025/26 fiscal year, PwC expects tax revenue to reach around R1,951 billion—slightly lower than previous estimates.
They do not foresee major tax increases in Budget 2025 and hope to see relief for personal income tax (PIT) after the R18.2 billion increase in Budget 2024.
Renewable Energy Tax Incentives
PwC notes that the government introduced two renewable energy tax incentives—the solar energy tax credit and the enhanced deduction for renewable energy investment—to help address South Africa’s energy crisis.
The sunset dates for these incentives are fast approaching, with the solar energy tax credit expiring on 1 March 2024 and the enhanced deduction ending on 28 February 2025.
National Treasury has been collecting data to evaluate the effectiveness of these measures, and if the data indicates success, PwC predicts that the government may extend these incentives. However, they do not expect the solar energy tax credit to be renewed.
Fuel Levies and RAF Reform
PwC highlights that the South African Reserve Bank has identified potential areas for reform in the fuel price structure, particularly regarding the Road Accident Fund (RAF) levy.
While the general fuel levy has remained unchanged since 2021, PwC expects Budget 2025 to announce an inflationary increase in the fuel levy, given that fuel prices have stabilised and inflation has decreased.
The RAF levy, on the other hand, is likely to remain unchanged in Budget 2025, pending potential reforms to the RAF.
Urban Development Zone (UDZ) Tax Incentive
In PwC’s predictions, they note that the Urban Development Zone (UDZ) tax incentive, which supports urban renewal, is set to expire in March 2025.
National Treasury is reviewing the incentive and will use stakeholder feedback to determine whether it will be extended. PwC anticipates that a decision on this will be made in Budget 2025.
VAT and Health Promotion Levy
PwC predicts that Budget 2025 may include a proposal to expand the list of essential food items qualifying for VAT zero-rating, following the President’s announcement that the government would consider expanding this list.
Meanwhile, PwC expects the health promotion levy (sugar tax) to remain frozen in Budget 2025, pending further research into its socio-economic impact and the finalization of the industry’s master plan.
Environmental Tax Reforms
According to PwC, National Treasury continues to explore potential reforms to environmental taxes, including restructuring the general fuel levy and considering new taxes related to air pollution and carbon emissions.
Although a 2020 government proposal highlighted several new environmental tax measures, PwC notes that no official review papers have been released as of yet. They predict that environmental taxes will continue to be under review, with more developments expected in the coming years.
Carbon Tax Predictions
PwC also highlights that the carbon tax will continue to be implemented in phases. Although the second phase was delayed from January 2023 to January 2026, the tax rate for 2025 is expected to rise to R236 per tonne, with annual increases scheduled through to 2030, when it is expected to reach R462 per tonne.
As South Africa faces numerous economic challenges, PwC’s predictions suggest that Budget 2025 will be closely watched for potential tax relief, fiscal policies, and strategies to address the country’s ongoing financial and energy issues.
