South Africa’s National Treasury is actively searching for an extra R20 billion in tax revenue for 2026, a move to compensate for the decision to avoid increasing Value Added Tax (VAT) in 2025. This pursuit is part of a broader effort to bridge a projected R70 billion budget shortfall over the coming years. Yet, in news that will likely bring relief to businesses across the region, including those with interests in our neighbouring economic powerhouse, the Treasury appears firmly against raising Corporate Income Tax (CIT).
The pronouncement came during May’s 2025 Budget debate responses, where officials made it clear that while all potential tax measures are on the table for 2026, hiking the corporate tax rate is a distant consideration. Many voices have joined the debate, with proposals ranging from deep government spending cuts, which could threaten essential programmes, to calls for new tax instruments like a wealth tax or, indeed, an increase in corporate levies.
However, Treasury officials have consistently stated that their corporate income tax rate is already too steep. This current elevated rate, they argue, acts as a deterrent to foreign direct investment and hampers South Africa’s competitive standing on the global economic stage. They pointed out that companies operating in South Africa already contribute a larger share of corporate tax revenue to GDP than most other nations, surpassing the global average, the OECD region, Africa, and the Asia-Pacific region.
Data presented indicated that out of 123 countries reporting to the OECD, South African companies bear the 13th highest tax burden when viewed as a percentage of Gross Domestic Product. Studies, according to the Treasury, illustrate that corporate income taxes negatively impact economic growth, often more so than other forms of taxation. Modelling from 2014/15, for instance, suggested that an attempt to raise R45 billion through CIT hikes could have led to a significant 2.64% decline in real GDP by 2017, a far steeper drop than estimates for personal income tax or VAT increases. Conversely, when South Africa reduced its CIT rate from 28% to 27% in 2022, no adverse economic effects were recorded.
Should the government decide to increase the CIT rate from 27% to 33% — a nine percentage point jump above the OECD average, estimated to generate R28 billion — there’s a strong likelihood that companies would react. Such responses could include reducing reported profits, divesting, or freezing crucial investment plans within the country. Another concern is the potential for businesses to pass on these additional costs to employees through retrenchments or limited salary increases, or directly to consumers. Ultimately, the cost could be borne by South Africa itself, manifesting as higher unemployment, slower economic growth, and diminished investment.
Instead, the National Treasury suggests that the most effective way to boost CIT income is through fostering economic growth and broadening the tax base, alongside improving overall tax compliance. This doesn’t mean South African companies will escape all new tax measures, however. The global minimum tax (GMT) has been signed into law in South Africa, which will result in higher effective tax rates for large South African and foreign multinational corporations operating locally. The South African Revenue Service (SARS) anticipates collecting more CIT revenue from these measures starting in the 2026/27 financial year, with these large entities currently contributing over a third of the total CIT revenue.
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