The business community is being hit with more speculation around a further VAT increase ahead of the Budget Speech on 25 February 2026.
As a glass half full kinda guy I asked myself one question today; “Who benefits from a VAT increase?” The reason why I ask is because investing in the times of volatility can sometimes be beneficial. The trick from posing this question is to then be able to hone in on a particular industry or share that will benefit from a VAT increase.
Below are my amateur findings.
When it comes to any form of tax we always get two sides:
- Government that goes on the ‘offensive’ laying out plans on how they intend to spend the extra money on citizens and
- Society that does not trust government spending at all so slips into denial of any proposed plan to increase tax
What we should be doing is looking at the two sides of the coin:
- Who will benefit the most
- Who will be prejudiced.
Who will benefit:
Public Sector:
SARS: The primary beneficiary will be the South African Revenue Service (SARS): As the primary beneficiary, the state expects to generate an additional R28 billion in 2025/26 and R14.5 billion in 2026/27 to fund healthcare, social grants, and infrastructure.
The concern here is that the government will benefit first, then apply expensive money processing (expensive tenders, fraud, corruption, overspend on manpower, consultants, leakage etc.) before dispensing ever decreasing funds to a desperate citizenry navigating failed medical systems, failed infrastructure, failed governance, failed SAPS, failed …. most everything touched by government.
Professional Services and Technology:
Accounting and Tax Advisory: Businesses in this sector often see an increase in demand as vendors seek professional help to update their systems, ensure compliance with new rates, and optimize their tax positions.
Accounting Software Providers: Companies like Xero or Sage benefit as businesses leverage technology to automate new tax calculations and manage the increased administrative burden.
System and IT Consultants: Large enterprises require IT specialists to update Enterprise Resource Planning (ERP) and billing systems to reflect the new 15.5% and 16% rates.
Strategic Vendors and Exporters:
Exporters: South African goods for export are zero-rated (0% VAT). Because exporters can still claim input tax credits on their local expenses (which will now have a higher VAT value), they can effectively reduce their overall tax liability and improve international competitiveness.
Zero-Rated Food Suppliers: Producers of “basket” staples—such as brown bread, maize meal, milk, rice, and fresh vegetables—charge 0% VAT but can claim back the higher 15.5% or 16% VAT paid on inputs like packaging and utilities, creating a cash flow advantage.
Expanded Zero-Rating Candidates: To cushion the 2026 hike, the government plans to add items like canned vegetables, dairy liquid blends, and certain meats (offal) to the zero-rated list, potentially benefiting retailers and producers specializing in these goods.
Financial Sectors:
Agile Credit Providers: A VAT increase often forces a “market recalibration.” Agile lenders may find opportunities in providing refinancing options or essential loans to consumers and SMEs struggling with tightened cash flows.
Debt Collection and Risk Management: Businesses specializing in credit scoring and risk assessment may benefit from increased demand as firms look to refine their models in a tighter economic environment.
Happy confused investing!
