On Wednesday finance minister Enoch Godongwana will present the national budget against the backdrop of a corporate tax bonanza boosted by a commodity price rally, higher VAT receipts and excise duty collections. Corporate income tax receipts gained pace in December and are up 9% year on year for the fiscal year to date, now tracking ahead of the 7.8% growth target set for the full year.
Corporate income tax revenues have benefited from a combination of stronger consumer demand, higher commodity prices and relatively subdued input cost inflation. Together, these factors have supported corporate profitability and in turn boosted tax collections.
The settlement of second provisional tax payments by corporates in February 2026 is expected to reflect even higher tax expenses already reported by companies. As a result, the National Treasury is likely to remain on track to meet or exceed its corporate income tax growth target for this fiscal year. Looking ahead to the 2027 financial year, we revise our forecast of corporate income tax receipts upward by R28bn, translating into a projected year-on-year growth rate of 13.6%. While this represents a notable increase, it remains conservative by historical standards, particularly when compared with 2022, when corporate income tax receipts surged 53% year on year amid the commodity price rally.
Overall, healthy tax receipts are expected to benefit South Africa’s fiscus in the near term while the medium-term outlook will be dependent on expenditure restraint.
Our forecast of gross tax revenue for this financial year has been revised R5bn higher than the projections set out in the 2025 medium-term budget policy statement (MTBPS), while our estimate for 2027 is R32bn higher. Despite the upward revisions, the outlook is considered relatively conservative with additional upside possible should global demand for commodities strengthen. Overall, healthy tax receipts are expected to benefit South Africa’s fiscus in the near term while the medium-term outlook will be dependent on expenditure restraint.
VAT collections rose a robust 9% year on year to December, comfortably outpacing the National Treasury’s full‑year growth target of 7.8%. This outperformance has been underpinned by resilient household consumption, with domestic VAT receipts exceeding official projections. Improved compliance has also played a role, as the South African Revenue Service has intensified efforts to curb fraudulent VAT refund claims. As a result, VAT revenue is now expected to overshoot official estimates by R5bn-R8bn this year. We have revised our forecast of VAT receipts by a similar margin throughout the medium-term expenditure framework (MTEF).
Personal income tax receipts remain a concern. However, with employment levels picking up from the third quarter of 2025 this may lift tax receipts in the coming months. Thus far, revenue growth in personal income tax collections, the largest component of government revenue making up 40% of total revenue, came in at 7% year to date, compared with the full-year target of 8.2%.
In the 2025 MTBPS the Treasury reduced its forecast of personal income tax collection because of lower growth in the wage bill following the adoption of the lower inflation target. There is a risk that this component is revised down again in the upcoming budget review. We have not adjusted our estimate of personal income tax as we believe employment growth may pick up in the near term. Furthermore, despite historically weak employment growth both total worker compensation (nominal) and personal income tax receipts usually increase in the fourth quarter. Still, this remains the biggest risk to our near-term forecast, with a possible undershoot of R11bn if worker compensation does not follow its historical trend.
Without a doubt, on the back of high commodity prices we expect increased corporate income tax revenue for the Treasury. This in turn should see the country’s fiscal position in a better position than anticipated even three months ago. In fact, if platinum group metal (PGM) prices remain around present levels, our estimates suggest that the major PGM producers could pay up to R35bn more in taxes over the next 12 months compared with the previous period. Reported tax expense by corporates listed on the JSE that earn at least 75% of revenue from South Africa have surged to a record high, with actual payments likely to be settled before the end of the tax year or in 2027.
Expenditure management
Pleasingly, spending remains well contained, with departmental spending up by just 3.9% year on year to December, compared with the budgeted 5.5% pace of spending growth for the year. Total spending has declined by 0.5% year on year versus the expected full-year rise of 8.3%. Many large departments have underspent relative to their spending pace last year and total underspending across all departments at December 2025 stands at R18bn.
However, January and March are typically high-spending months, which could see some of these savings being eroded. While spending growth is lower than a year ago and materially below full-year projections, there is a risk that spending was simply delayed because of the late adoption of last year’s budget. For this year we estimate an R17bn undershoot in total spending. Adjustments to spending in the outer years are negligible. However, we raise spending estimates sharply for 2029 due to the national elections. History has shown that in the year leading up to a national election spending growth always accelerates.
Commodity windfall
We expect the budget deficit to narrow in the coming years. Higher corporate income tax receipts will help contain the deficit, while a more favourable financial environment, marked by a stronger rand, lower inflation and a decline in bond yields and credit spreads, will reduce the discounts and revaluations, which have historically contributed to raising the debt stock. While the Treasury has the debt-to-GDP ratio remaining sticky above 77%, we believe the revenue boost and corresponding base effects could result in a more pronounced decline in the debt ratio. We see the debt-to-GDP ratio falling to 75.1% by 2029.
Political risks
Political risks present uncertainty to longer-term fiscal projections. This is because the medium- and longer-term risks from political changes, policy shifts and leadership changes are material. The MTEF includes a few political events, such as the ANC leadership conference as well as a national and local government election, which could shift priorities and place further upside pressure on spending.
The government of national unity is still in its infancy and may compete for limited resources to perform effectively in its various departments. In our view, a changing political climate presents a material risk to longer-term fiscal consolidation.
• Sumad is senior research analyst, and De Wet is lead fixed income/FX strategist: global markets at Nedbank Corporate & Investment Banking.
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