The 2026 Budget signals a deliberate recalibration of South Africa’s tax framework. Rather than dramatic headline-grabbing reforms, National Treasury has opted for targeted refinements across corporate taxation, international tax mechanics, personal income tax relief, VAT administration, customs duties, and carbon-related measures. The overall theme is clear: improve certainty, strengthen compliance, manage fiscal pressures, and refine technical anomalies that have emerged in practice.

Below is a consolidated analysis of the most significant developments.

1. Corporate Tax: A Reset for Collective Investment Structures

Collective Investment Schemes (CISs), particularly hedge funds, have long been subject to debate regarding the tax treatment of their returns. Treasury has now moved to clarify its policy stance.

Going forward, investment returns generated by conventional CISs and retail hedge funds will generally be treated as capital in nature. This introduces welcome certainty for investors who previously faced ambiguity regarding the character of gains realised within these vehicles.

However, the position is less favourable for certain hedge funds with restrictive investor thresholds. Where funds are effectively limited to high-net-worth participants and are not broadly available to the public, they may be excluded from the more beneficial capital treatment. In such cases, general tax principles will apply, including scrutiny as to whether returns constitute capital realisations or revenue from active trading activities.

The reform appears to pursue two objectives: encouraging long-term savings while preventing structures that could be perceived as aggressive tax planning vehicles.

2. International Tax: Foreign Currency Translation Anomalies Addressed

A technical but important correction is proposed in respect of the interaction between controlled foreign company (CFC) rules and domestic treasury management companies (DTMCs).

DTMCs are South African tax residents but are treated as non-residents for exchange control purposes. The difficulty arises where foreign income attributed under CFC rules must be translated into rand, while DTMCs operate in foreign functional currencies. The current legislation can require multiple currency translations, potentially resulting in distortions and unnecessary administrative burdens.

Treasury has recognised this mismatch and proposes amendments to streamline the process where a DTMC holds shares in a CFC. The intention is to eliminate redundant currency conversions and align taxation with economic reality. This is a technical but highly welcome development for multinational groups using South Africa as a treasury hub.

3. PAYE and Non-Resident Employers: Refining the Permanent Establishment Test

Recent legislative changes required non-resident employers with a permanent establishment (PE) in South Africa to withhold PAYE. However, practical difficulties soon emerged.

The concept of a PE, traditionally associated with corporate income tax, is fact-intensive and not always straightforward to determine. Furthermore, situations arose where foreign employers with a PE in South Africa were required to withhold PAYE for employees who were not connected to that PE and who rendered services entirely outside South Africa.

The Minister has now indicated that the withholding obligation will be refined to apply only where the employee is effectively connected to the South African PE. This realignment with international tax principles reduces unintended consequences and provides greater clarity for cross-border employers.

4. Personal Income Tax: Relief from Fiscal Drag

After several years of bracket creep, the 2026 Budget provides measured relief to individuals.

Income tax brackets will be adjusted to account for inflation, reducing the “silent tax” effect that occurs when taxpayers are pushed into higher brackets without real increases in purchasing power. While the adjustment does not fully compensate for prior years of fiscal drag, it is a step in the right direction.

Several thresholds and exemptions have also been increased:

• The annual donations tax exemption for individuals rises to R150,000.
• The annual capital gains exclusion increases.
• The capital gains exclusion in the year of death is significantly expanded.
• The primary residence exclusion increases to R3 million.

These adjustments collectively ease the tax burden on individuals, particularly in estate planning and asset disposals.

5. SARS Enforcement and Tax Administration: Performance Under Scrutiny

The Budget provides transparency regarding SARS’ debt collection efforts. Despite additional funding and increased staffing, collection targets have not been fully achieved.

Outstanding tax debt remains substantial, particularly undisputed liabilities. Treasury attributes the shortfall to delays in capacity expansion, rising disputed debt, and growth in deferred payment arrangements.

Importantly, taxpayers should remember that the “pay now, argue later” principle remains operative. The lodging of an objection does not automatically suspend payment obligations unless a separate suspension application is granted.

The clear message is that SARS’ enforcement capacity continues to strengthen, and taxpayers should proactively manage exposures.

6. Provisional Tax: Stricter Consequences for Late Payment

The provisional tax system, designed to spread tax payments over the year, is being tightened.

While underestimation penalties remain in place, Treasury proposes that taxpayers who submit accurate estimates but fail to make timely payments should not benefit from the lower penalty structure. In effect, cash flow discipline is being prioritised.

The R1 million threshold used in determining reliance on prior assessments will increase to R1.8 million, offering limited relief to smaller taxpayers.

7. Voluntary Disclosure Programme (VDP): Interest Remission Window Opens

Following the Constitutional Court’s decision in the Medtronic matter, taxpayers who concluded voluntary disclosure agreements were unable to seek remission of interest after the fact.

The 2026 proposal addresses this rigidity by permitting taxpayers to apply simultaneously for interest remission when submitting a VDP application. This does not guarantee interest relief, but it restores procedural fairness and enhances the attractiveness of voluntary compliance.

The change is expected to take effect from 1 March 2026.

8. VAT Reform: Thresholds and Compliance Adjustments

Several notable VAT amendments are proposed:

• Higher Registration Thresholds
• The compulsory registration threshold increases to R2.3 million.
• The voluntary registration threshold rises to R120,000.
• This reduces administrative pressure on small enterprises and may improve liquidity.

Filing Deadlines

The distinction between eFilers and manual filers will be removed. All vendors will submit and pay by the last business day of the month.

Second-Hand Goods

Stricter documentary requirements will apply to notional input tax claims on second-hand goods. Vendors must comply with expanded record-keeping requirements aligned with the Second-Hand Goods Act.

Gold Supplies

The zero-rating for gold supplied to banks and certain institutions will be repealed, bringing such supplies into the VAT net at the standard rate.

Electronic Services

Intermediaries will, by default, be responsible for VAT on electronic services unless an agreement specifies otherwise.

Leasehold Improvements

The VAT adjustment mechanism for leasehold improvements will extend to non-vendor lessors, closing a perceived gap.

9. Customs, Excise and Fuel Taxes

Excise duties on alcohol and tobacco products will increase broadly in line with inflation.

Fuel levies will also rise, including adjustments to the carbon fuel levy and the Road Accident Fund levy. While the increases are described as moderate, cumulative fuel taxation remains a material component of pump prices.

Additional technical amendments aim to modernise customs administration, including the digitisation of ATA Carnets and refinement of discretionary powers under the Customs Act.

10. Carbon Tax: Rate Increase and Structural Adjustments

The carbon tax increases from R236 to R308 per tonne of CO₂ equivalent.

Key developments include:

• A clearer refund mechanism where entities comply with multi-year carbon budgets.
• Replacement of capacity-based thresholds with emissions-based thresholds for certain combustion activities.
• Adjustments to carbon fuel levy administration.

The policy focus is to align carbon taxation with climate transition commitments while reducing unnecessary compliance for low-usage entities.

11. Special Economic Zones: Reviewing Anti-Avoidance Criteria

Companies operating within approved special economic zones benefit from a reduced corporate tax rate of 15%.

Treasury is reconsidering the rule that disqualifies companies where more than 20% of income or deductions arise from connected persons. The concern is that the existing threshold may discourage legitimate supply chain integration. A potential shift toward a market-value pricing test is under consideration.

12. Proposed Online Gambling Tax: Consultation Continues

Although not formally introduced in this Budget, Treasury has reiterated its intention to explore an online gambling tax.

The rationale is to internalise the social costs associated with problem gambling. However, critical questions remain regarding enforcement, particularly in relation to illegal offshore operators. Without robust enforcement, there is a risk that taxable activity migrates to the illicit sector.

This remains an area to monitor closely.

Conclusion

The 2026 Budget does not introduce sweeping tax increases, but it reflects a strategic tightening of compliance mechanisms and technical refinement of problematic provisions. Relief has been granted to individuals through bracket adjustments and exemptions, while businesses face targeted reforms in VAT, international tax alignment, and carbon taxation.

The overarching message is one of fiscal discipline paired with structural modernisation. For taxpayers and advisors alike, the emphasis should now shift to careful implementation planning, especially in areas involving cross-border structures, provisional tax compliance, VAT on second-hand goods, and carbon exposure.