Africa-Press – South-Africa. As the 2026 Budget approaches, attention is shifting away from politically toxic rate hikes towards whether SARS is effectively taxing digital services and offshore providers like Starlink.
Tax Consulting SA’s Team Lead of Tax Legal, Micaela Paschini, and Tax Attorney, Megan Langton, said that with the Budget Speech set for 25 February, the VAT issue is all but guaranteed to resurface.
That debate was already tested in 2025, when a proposed two 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,” Paschini and Langton said.
“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.”
As the 2026 Budget approaches, the question is no longer whether VAT will feature in the medium term, but rather how it will feature. Unexpectedly, names like Starlink have also entered the wider conversation.
While VAT is designed to follow consumption, Paschini and Langton said 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,” they explained.
“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, the Treasury must consider whether the VAT system is fully capturing modern consumption.
“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,” Paschini and Langton said.
“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.”
Paschini and Langton explained that the policy intent behind these amendments was clear, with the Treasury wanting to ensure that VAT applies to services consumed in South Africa, regardless of where the supplier is based.
This means that services rendered digitally fall within the VAT framework. “On paper, this framework is robust,” they said.
However, they explained that, in practice, it is far more difficult to apply to a fast‐moving, borderless digital economy.
VAT leaks through digital cracks
As the Treasury prepares to balance the books ahead of the February Budget, considering whether VAT is leaking through digital cracks may be the more uncomfortable, but also more important, issue, Paschini and Langton said.
In the digital economy, VAT collection depends on several factors. These include accurate supplier registration, correct service classification, and ongoing voluntary compliance.
“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,” they explained.
“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.”
Following the rejection of the proposed VAT hike in 2025, Finance Minister Enoch Godongwana assured that the 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,” they warned. Ahead of 25 February, policymakers face a tighter balancing act –
Preserving VAT as a reliable and enforceable revenue source
Avoiding further strain on households and businesses already under pressure
Ensuring the VAT base keeps pace with a digitised, service-driven economy, without relying solely on rate increases
Paschini and Langton cautioned that all of these considerations demand more nuance than simply adjusting the percentage.
Hot topics, like Starlink, for example, while not yet officially available in South Africa, reflect the broader reality that 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,” they said.
With further VAT increases seemingly politically fraught, the more pressing question is whether VAT collection keeps pace with how the economy actually works today.
“That may be where the most meaningful debate lies in the 2026 Budget and beyond,” Paschini and Langton added.
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