Budget gives taxpayers a breather

Individual taxpayers were spared a R20 billion increase in personal taxes and will instead be given R13.7 billion relief from inflation-related tax bracket creep for the first time in three years, Finance Minister Enoch Godongwana announced in his Budget speech today.

The tax thresholds above which the income you earn as an individual is taxed, as well as the income tax brackets, will increased from March 1 2026 in line with the National Treasury’s expected inflation rate of 3.4 per cent.

A number of other tax thresholds and exemptions were also increased by higher rates after many years of remaining at the same level. These adjustments compensate for inflation, which has, over the years, resulted in greater taxation by stealth.

Savers in particular will benefit from some of the relief as the National Treasury is adjusting annual tax-free and retirement fund contribution limits, as well as the annual capital gains tax (CGT) exclusion.

There are also increases in CGT exemptions that will bring some relief to estates on death, homeowners who sell their primary residence, and small business owners who sell a business.

Medical tax credits for taxpayers who pay scheme contributions were increased by just 3.2 percent after two years of no increases. This increase follows the pattern of increases well below the average increases in medical scheme contributions. Contributions have been increasing by an average of around 7.3 percent for the past decade since the credits were introduced.

This year, most schemes introduced increases in contributions for 2026 of more than seven percent – often eight or nine percent.

The Budget Review notes that the medical scheme tax credit will increase by just R12 a month more from R364 a month to R376 a month for the first two dependants on a medical scheme and by R8 a month from R246 to R254 for any subsequent dependants registered on a medical scheme.

The good news

The good news for savers, home owners and those who will incur capital gains is that increased thresholds and exemptions will apply for the tax year that starts on March 1:

• The annual contribution to a tax-free savings account is increased from R36 000 a year to R46 000 – a 27 percent increase. The limit was last adjusted in 2021. Unfortunately, the annual lifetime limit of R500 000 was not increased and has not been increased since it was implemented in 2015.

Treasury officials indicated that the limit was not yet an issue, as anyone contributing at the maximum level each year would still not have breached this limit. 

• The maximum tax deductible rand amount that can be contributed to a retirement fund in any tax year has been increased from R350 000 to R430 000 – a 22.8 percent increase. The limit has not been increased since it was introduced in 2016. The contribution rate of 27.5 percent of annual remuneration or taxable income remains.
  
  
• The annual CGT exclusion has been increased from R40 000 to R50 000 – a 25 percent increase.
  
  
• The CGT exclusion on death has been increased from R300 000 to R440 000 – the first increase since 2012. The estate duty rate remained the same and abatement of R3.5 million and up to R7 million for a surviving spouse was also not increased.

The exemption from donations tax for donations made by individuals was increased from R100 000 to R150 000.

In addition, South Africans who travel or invest offshore will be pleased to know that the discretionary allowance for travel or investing offshore without tax clearance will be increased from R1 million to R2 million.

Not such bad news for drinkers and smokers

Despite predictions that drinkers would face large increases in excise duties, these were only increased by 3.4 percent. Treasury officials explained that this will affect new stock as it comes onto the shelves of your favourite alcohol and cigarette retailer.

Treasury plans to propose tax amendments so that as of next year, these so-called sin tax increases will come into effect on April 1 instead of immediately after the Budget as is the case currently.

Levies on fuel

The fuel levy on petrol will increase by 9 cents a litre, while diesel will increase by 8 cents a litre. A further levy for the Road Accident Fund of 7 cents a litre will be imposed on both petrol and diesel.

Social grants

Godongwana also announced increases of around 3.6 percent in the social grants.

The old age and disability grants will increase from R2 305 to R2 400 a month.

The child support grant will increase by R29 from R560 to 580 a month.