Extra tax revenue helps fiscal profile

The SA Revenue Service (Sars) has managed to collect R17.5bn more in the first six months of the 2025/26 fiscal year than the budget forecast mainly due to higher domestic VAT and corporate tax collections.

For the whole year, the Treasury has increased its tax revenue target by R19.7bn to R2-trillion from the budget’s R1,986-trillion.

Sars commissioner Edward Kieswetter said at a media briefing R9.5bn of the gain was due to compliance efforts. He added the second half of the fiscal year was traditionally better than the first half.

Domestic VAT collections grew 7.8% fuelled by higher household consumption. “Weaker economic activity and stronger enforcement to stop fraudulent claims slowed growth in VAT refunds. Net VAT collections will exceed 2025 budget estimates,” the medium-term budget policy statement said.

Corporate and dividend tax collections were derived from the trade, electricity and finance sectors, boosted by large one-off dividends tax collection in mining and retail.

However, personal income tax was slightly lower than expectations.

“Fuel levy collections have been driven by strong growth in payments from fuel importers. Total collections are estimated to improve in 2025/26 following the sharp contraction in demand in 2024/25 alongside large diesel fund claims settlements,” the MTBPS said.

Import VAT and customs duties and specific excise collections are expected to underperform the 2025 budget projections in line with weaker import growth.

It is still early days in terms of Sars’ drive to reduce debt owed to it. The tax authority was granted an additional R4bn in the 2025 budget — bringing its total allocation over three years to R7.5bn — with the aim of increasing debt collection by R20bn to R50bn a year and to invest in new technology.

“Sars data for the first six months of 2025/26 shows that debt collections remain below estimates because of the legal and technical complexity of settling many cases. Sars has obtained additional skills to address complex cases which should improve collections for the rest of the year,” the Treasury said in the medium-term budget.

Kieswetter noted the universe of debt was harder and more complex, requiring tougher legal engagements such as obtaining civil judgments, letters of demand, threatening the attachment of assets to secure the payment of debts, and so on.

Because of the lower inflation target the tax revenue projection for 2027/28 has been revised downwards by R17bn.

“Expectations for corporate and personal income tax collections are revised downwards due to a weaker profitability outlook and lower wage bill growth, respectively. Lower inflation, the lagged effect of interest rate cuts and improved sentiment are expected to support household consumption resulting in improved domestic VAT collections.

“Though import VAT continues to underperform in line with a weaker outlook for import growth, lower VAT refund payments contribute to net VAT collections exceeding 2025 budget estimates. Undercollections in specific excise duties receipts (particularly cigarettes and petroleum products) relative to 2025 budget estimates flow through to the outer years and will require significant improvement in enforcement and compliance,” the Treasury said.