With the 2026 Budget Speech set for 25 February, one issue is all but guaranteed to resurface: VAT.
Micaela Paschini
Team Lead: Tax Legal at Tax Consulting
Megan Langton
Tax Attorney
With the 2026 Budget Speech set for 25 February, one issue is all but guaranteed to resurface: VAT.
Micaela Paschini
Team Lead: Tax Legal at Tax Consulting
Megan Langton
Tax Attorney
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That debate was already tested last year, when a proposed 2 percentage point VAT increase was tabled and then rejected, derailing the Budget process by several months. It was an unusual moment in South Africa’s fiscal history, and it sent a clear signal: Taxpayers and businesses are under financial pressure, and consumption taxes are no longer an easy lever to pull.
But the arithmetic has not changed. Revenue remains constrained, expenditure demands continue to grow, and VAT remains one of the state’s most dependable tools.
So as Budget Day approaches, the question is no longer whether VAT will feature in the medium term, but how. And unexpectedly, names like Starlink have entered the wider conversation.
A Familiar Tax, a Changing Economy
VAT is designed to follow consumption. The challenge is that consumption no longer looks the way it once did.
South Africans are spending more and more on services that are delivered digitally, paid for electronically, and supplied by companies with no physical footprint in the country.
Software, platforms, subscriptions, remote tools and digital services are no longer niche expenses. They are embedded in daily life and business operations.
As the economy evolves, so too does the question facing Treasury ahead of the Budget: Is the VAT system fully capturing this modern consumption base?
SARS Has Been Here Before, More Than Once
VAT on digital services is not a new concern for tax authorities.
Over the past 12 years, South Africa has introduced three legislative amendments aimed squarely at improving VAT collection from foreign suppliers of electronic services.
Definitions were broadened, registration requirements expanded and the net was cast wider to ensure that VAT followed the end‑consumer who is enjoying the service in South Africa.
The policy intent was clear: VAT should apply to services consumed in South Africa, regardless of where the supplier is based. This means that services rendered via digital means fall within the VAT framework.
On paper, this framework is robust. In practice, applying it to a fast‑moving, borderless digital economy is, however, anything but simple, which is precisely why the question keeps resurfacing.
Is VAT Leaking Through the Digital Cracks?
As Treasury prepares to balance the books ahead of the February Budget, this may be the more uncomfortable, but more important, issue.
VAT collection in the digital economy often depends on:
Unlike traditional vendors, many foreign digital service providers operate beyond the daily visibility of local regulators. The result is not necessarily deliberate avoidance, but structural gaps that can lead to missed revenue.
When set against the political resistance to higher VAT rates, attention inevitably turns to whether existing consumption is being taxed as effectively as it could be.
A More Nuanced VAT Conversation for Budget 2026
Following the rejection of last year’s proposed VAT hike, Finance Minister Enoch Godongwana gave the assurance that proposed increases in the VAT rate for both 2025/26 and 2026/27 have been dropped. However, this does not necessarily mean that VAT has been removed from the table altogether. Rather, it complicated the discussion.
Ahead of 25 February, policymakers face a tighter balancing act:
That demands more nuance than simply adjusting the percentage.
The Question the Budget May Have to Answer
Starlink, while currently not officially available in South Africa, may grab headlines, but it reflects a broader reality: South Africans are increasingly consuming value in ways that do not fit neatly into traditional tax models.
As Budget Day approaches, the VAT conversation is less about whether rates can rise, and more about whether the tax system itself is aligned with modern consumption patterns.
With further VAT increases seemingly politically fraught, the more pressing question becomes whether VAT collection is keeping pace with how the economy actually works today.
That may be where the most meaningful debate lies in the 2026 Budget and beyond.
