South Africa’s Tax Base on the Brink: Experts Warn of Potential Collapse

South Africa’s tax base is under growing strain, with economists warning that higher taxes could trigger a collapse in revenue collection. According to the latest tax statistics, only 3.94% of taxpayers contribute nearly half (49%) of all personal income tax revenue—a situation that experts say is unsustainable.

A Heavily Strained Tax Base

Personal income tax (PIT) remains the largest revenue source for the government, projected to generate R811.1 billion in the 2025/26 financial year. This is followed by:

• Value-added tax (VAT): R499.5 billion

• Corporate income tax (CIT): R331.3 billion

However, South Africa’s tax base is not expanding fast enough, and further tax hikes could push high-income earners to relocate or move their wealth offshore.

Tax Burden Falls on a Small Minority

The data shows that 569,351 individuals earning over R1 million annually paid personal income tax in 2025/26, a 16% increase from the previous year. While this group has grown, it still represents less than 4% of the country’s 14.45 million registered taxpayers—yet they contribute nearly half of all personal income tax revenue.

The Risks of Over-Taxation

Dawie Roodt, Chief Economist at Efficient Group, warns that the government may not collect the revenue it expects from PIT due to bracket creep and economic stagnation.

“Having so few people paying the majority of taxes means the system is fragile. If the government continues increasing taxes, it could lead to a collapse in revenue collection,” Roodt explains.

The Laffer Curve suggests that raising tax rates beyond a certain threshold can reduce overall tax revenue as taxpayers seek ways to avoid or relocate their taxable income.

Will Revenue Targets Be Met?

The 2025/26 budget aims to raise:

• R28 billion in additional revenue

• R19.5 billion from PIT adjustments

• R13.5 billion from a 0.5% VAT increase

However, Roodt predicts that the VAT hike will fall short, likely raising closer to R10 billion instead of the projected R13.5 billion. He also doubts that PIT revenue will meet expectations, potentially falling R1-2 billion short.

Wealthy South Africans Moving Their Money Abroad

With an increasing tax burden, high-net-worth individuals are actively shifting their money offshore.

“Many wealthy individuals feel overtaxed and are restructuring their tax affairs to reduce their obligations in South Africa,” says Roodt.

This trend poses a significant risk: if more high earners leave or move their wealth overseas, South Africa’s tax base could shrink further, worsening the fiscal crisis.

What Lies Ahead?

South Africa’s tax policy is at a crossroads. If the government continues to push for higher taxes, it may inadvertently reduce overall tax revenue—creating deeper economic challenges.

With supply-side constraints, stagnant economic growth, and rising emigration of top earners, experts warn that South Africa’s tax base is already stretched to its limit. The next budget decisions will be crucial in determining whether the country can avoid a full-scale tax revenue collapse.

{Source BusinessTech}

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