Explanation of Broadening the Tax Base and Strengthened Enforcement:

 

In the context of the 2025 South African Budget, the concepts of broadening the tax base and enhanced enforcement represent essential strategies designed to boost government revenue without substantially increasing existing tax rates. 

Broadening the tax base involves increasing the number of taxpayers or the range of taxable activities so that the tax burden is shared more widely rather than increasing taxes on a smaller pool of existing taxpayers.  

In simpler terms, instead of squeezing more taxes from the same people, the government aims to bring more taxpayers into the system, especially businesses and individuals who previously underreported income or avoided taxes altogether. 

How is this done in the 2025 budget? The corporate tax rate does not increase. It remains unchanged at 27%. Instead, the government is targeting more revenue through better enforcement and preventing profit-shifting. 

The Implementation of Global Minimum Tax (OECD Pillar Two) on South African Companies paying low taxes internationally will now face a minimum tax, ensuring multinational corporations pay their fair share locally. 

In closing Compliance Gaps, SARS identified approximately 156,000 taxpayers with significant economic activity who were previously unregistered or failing to file taxes. Bringing these entities into the tax system means more taxpayers contribute, easing the burden on compliant businesses and individuals. 

Enhanced Enforcement: 

Enhanced enforcement involves increasing the efficiency and effectiveness of tax collection through stronger compliance measures and rigorous auditing by SARS. 

The government intends to implement stricter enforcement measures against entities and individuals attempting to engage in tax evasion or misreport their financial information. The primary goal is to enhance tax revenue collection efficiency without raising tax rates. 

To achieve this, the budget committed to investing in SARS Capacity, with additional funding of R3.5 billion immediately and R4 billion over three years to modernise technology, improve data analysis capabilities, and recruit skilled personnel. 

Advanced technology, specifically artificial intelligence and data analysis, will help the South African Revenue Service (SARS) quickly spot irregularities and discrepancies. This improved capability will make it more difficult for businesses and individuals to avoid paying taxes. 

Improved border control measures, such as scanning technology at ports, will tighten controls over customs and excise duties, reducing illicit trade and under-declarations. 

Practical Implications for Taxpayers (Simplified): 

Action Taken by Government	What it Means for You or Your Business
No corporate tax rate increase	Businesses won’t face higher direct tax rates, but must ensure accurate income reporting.
Frozen personal income tax brackets	Salaried individuals pay slightly more tax (indirectly), as rising wages push them into higher tax brackets without actual rate changes.
Increased VAT rate (to 15.5%)	Everyone pays slightly more on most purchases; government collects more tax indirectly.
Expanded SARS enforcement (AI, data analytics)	Tax compliance becomes more critical; expect closer scrutiny on filings.
Expanded zero-rated VAT goods	Some relief for lower-income households by exempting more basic food items from VAT.

Practical Implications for Strategic Action: 

Businesses must rigorously review their tax compliance practices and enhance the precision of their documentation processes. It is essential to ensure that accounting systems reflect accurate and timely VAT adjustments in response to recent rate changes. Moreover, organisations should proactively identify and rectify any compliance gaps highlighted through SARS's data-driven inspections to mitigate the risk of incurring penalties.    Individuals need to reassess their financial planning strategies to accommodate the impact of increased indirect taxes, particularly VAT, which will likely reduce disposable income. To alleviate their overall tax burden, they should proactively maximise available tax deductions, such as retirement contributions and investments in tax-free savings accounts. Furthermore, individuals should be cognisant that the absence of adjustments to tax brackets effectively increases their tax liability in real terms due to inflationary pressures.    In conclusion, broadening the tax base and enhancing enforcement reflect the government’s aim to raise revenues fairly by reducing evasion and integrating more taxpayers into the formal economy, rather than merely increasing rates. For taxpayers, this highlights the importance of careful compliance and proactive financial planning in navigating the new tax environment.