Budget 2026 preview signals fiscal discipline and infrastructure push

As South Africa's minister of finance, Enoch Godongwana prepares to deliver the national budget later this week, leading economists and tax specialists expect a pragmatic, disciplined and growth conscious framework that builds on the tone set in last year’s medium term budget policy statement.

While few dramatic policy shifts are anticipated, experts believe the emphasis will fall squarely on fiscal consolidation, infrastructure investment and stronger tax enforcement as government works to stabilise debt and support economic recovery.

Fiscal consolidation under the spotlight

Frank Blackmore, Lead Economist at KPMG South Africa, believes this year’s budget is likely to be steady rather than sensational.

“This year’s Budget is going to be a good Budget and the reason why I say so is because I think there is going to be few changes both on the expenditure side as well as the revenue side of this year’s budget because the tone has been set by the medium term budget policy statement last year,” Blackmore said.

Blackmore will be watching government’s commitment to fiscal consolidation closely, particularly debt to GDP and deficit to GDP ratios.

“These should be declining as we turned the corner on those aspects in the last fiscal year. The importance of this would be less money going towards servicing this debt and that means more money available for service delivery,” he said.

A key pressure point remains the public sector wage bill, which absorbs roughly a third of total expenditure.

“This is obviously a large element that needs to be moderated in order to stick to our fiscal consolidation plans,” Blackmore noted.

He is also cautious about further state owned enterprise bailouts, warning that such allocations redirect funds away from critical services.

On a more positive note, Blackmore expects continued support for infrastructure.

“One of the items that we look forward to seeing is the money going towards infrastructure development in electricity, logistics infrastructure as well as municipal and water infrastructure, as these perform the bedrock of future growth initiatives.”

No sweeping tax hikes expected

From a tax perspective, Joubert Botha, Executive Director and Head of Tax and Legal at KPMG in Southern Africa, does not anticipate major rate increases.

“Our government has made it quite clear that they want to reduce the budget deficit and stabilise debt levels. Therefore, as one of the themes, I’m expecting fiscal consolidation,” he said.

However, Botha believes the fiscus will tread carefully when it comes to raising taxes.

“From a revenue perspective, I do not anticipate any significant tax rate increases. This is mainly due to the fact that the tax base is already under significant pressure due to slow economic growth and our government has made it quite clear that they do not want to overburden taxpayers.”

Instead, he expects greater investment in the South African Revenue Service, digital infrastructure and modernisation programmes.

He also points to “a focus on aggressive tax compliance campaigns, addressing illicit trade, closing tax loopholes and also broadening the tax base.”

Alignment with global reforms such as the OECD base erosion and profit shifting initiatives is also likely to feature.

“In summary, I’m therefore very hopeful for a pragmatic growth led budget that balances economic growth with fiscal discipline without overburdening the taxpayer,” Botha said.

Corporate tax and global alignment

Itumeleng Nkadimeng, Head of Corporate Tax at KPMG South Africa, said the country enters the 2026 budget cycle with renewed optimism following structural reforms and improved global engagement.

“The 2025 medium term budgetary policy statement also signaled a narrowing budget deficit pointing to greater fiscal stability,” Nkadimeng said.

Looking ahead, she expects increased corporate tax contributions in line with a strengthening economy, while maintaining the current corporate income tax rate.

She also anticipates continued implementation of enhanced tax rules supported by technology and “emphasis on enforcing the new 15% minimum tax for large multinationals for additional revenue collection.”

While the outlook appears promising, Nkadimeng added stakeholders are keen to see how these developments are integrated into the national budget framework.

Transfer pricing and stricter enforcement

Transfer pricing remains firmly on the radar of the South African Revenue Service, according to Amit Chadha, Partner and Africa Leader for Global Transfer Pricing Services at KPMG South Africa.

“With the ongoing budget deficit SARS is increasingly relying on transfer pricing as a means to meet its collection targets,” Chadha said.

He noted that the risk assessment model is being used more actively to identify audit targets, with greater scrutiny of transfer pricing models and the integrity of supporting data.

At the same time, South Africa’s exit from the grey list and improved business confidence require a careful balancing act. SARS must enforce compliance while providing certainty to foreign investors.

Chadha expects updates on the long awaited advance pricing programme rules in upcoming tax announcements. He also flagged that penalties for non compliance with transfer pricing documentation requirements have not yet been widely enforced, suggesting this could present an opportunity for improved collections.

Business braced for higher compliance costs

Ziyaad Ravat, Partner in Corporate Tax at KPMG South Africa, describes the anticipated budget as one characterised by realism and restraint.

“No groundbreaking changes are expected on corporate tax, but Treasury is likely to promote stability,” he said.

Ravat expects efforts to broaden the tax base through tighter rules and stronger enforcement as SARS rebuilds capacity. For businesses, this may mean higher compliance costs even without a rate increase.

“In the low growth environment, increased tax friction tends to favour consolidation over expansion,” he warned.

Deal making is likely to remain strategic and disciplined, with activity concentrated in energy, infrastructure linked investments, financial services and consumer sectors.

Customs, sin taxes and fuel levies

From a trade and excise perspective, Venter Labuschagne, Tax and KPMG Africa Solution Head for Customs and International Trade, expects illicit trade to remain high on the agenda.

He highlighted significant revenue losses linked to counterfeit goods and illicit cigarettes, saying greater enforcement and tighter border controls are likely.

As for sin taxes, Labuschagne anticipates increases of between five and seven percent on alcohol and cigarette duties. Fuel levies, which have remained unchanged for two years, may also be adjusted.

There is also mounting pressure to expand the health promotion levy, commonly known as sugar tax, potentially including sugary fruit juices that are currently excluded.

Labuschagne further expects developments around a voluntary disclosure programme for customs and excise, providing importers and manufacturers with an opportunity to regularise past non compliance.

In addition, incentives linked to the importation and local manufacture of electric vehicles could be introduced to support industrial development and reduce reliance on fossil fuels.

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