South Africa’s government has collected far more revenue from value-added tax (VAT) than projected in the Finance Minister’s May Budget, providing a welcome boost to state coffers as overall tax receipts outperform expectations.
According to the South African Reserve Bank’s latest Quarterly Bulletin, VAT collections rose 12.2% year-on-year in the first quarter of the 2025 financial year — more than double the 5.3% increase initially forecast. That translates into R106.2 billion in VAT revenue so far, setting the government on track toward the R482.2 billion full-year target outlined by the National Treasury.
The trend has remained strong, with August receipts up 11.4% year-on-year, indicating continued momentum into the second quarter.
The surge in VAT revenue comes despite the Finance Minister’s planned two-percentage-point VAT rate hike being shelved due to resistance from within the Government of National Unity (GNU).
Economist Kevin Lings of Stanlib attributed much of the growth to a decline in VAT refunds, as the South African Revenue Service (SARS) adopted a stricter stance on refund processing and shortened the submission period.
“The increase in VAT collections is largely due to tighter refund controls rather than stronger consumption,” Lings said.
The Treasury is relying heavily on SARS to boost revenue collection in a sluggish economy by narrowing the country’s estimated R800 billion tax gap — the difference between taxes owed and those collected. This gap widened during the state capture era, when SARS’ institutional capacity was severely weakened.
So far, SARS’ renewed enforcement efforts appear to be paying off. Personal income tax (PIT) revenue climbed 7.9% year-on-year in the first quarter and accelerated to 8.4% in August, while revenue from the general fuel levy jumped 12.6%, reaching an expected R96.6 billion for the full year.
Corporate income tax growth remains subdued but is expected to strengthen as rising commodity prices bolster profits in the mining sector.
On the spending side, the National Treasury has kept expenditure below budget, helping to contain fiscal pressures. This discipline, combined with stronger revenue inflows, is expected to deliver a larger primary budget surplus than forecast in May.
The Reserve Bank now estimates a primary surplus equal to 1% of GDP, up from the 0.8% projected earlier. A primary surplus occurs when tax revenues exceed government spending, excluding debt-service costs — a key step toward stabilising public debt.
However, despite the improved revenue picture, government debt continues to climb, rising 8.5% year-on-year in the first quarter to R5.8 trillion, or 78.1% of GDP. Finance Minister Enoch Godongwana had forecast a slower 7% rise for the year, with debt stabilising at 77.4% of GDP.
South Africa’s Treasury has repeatedly predicted that the debt burden would stabilise “in the near future,” yet such forecasts have failed to materialise since the last full budget surplus in 2008/09.
Over the past 15 years, government spending has outpaced economic growth, with much of the expenditure directed toward consumption rather than productive investment, such as infrastructure. As a result, debt levels have continued to rise, even as each successive budget promised consolidation.
Main Image: Bloomberg
