2026 Budget Speech Highlights

The Budget contains several measures that directly impact carbon tax exposure, energy strategy, emissions compliance and broader climate-related planning for South African businesses.

As your trusted partner, we have prepared a summary of the key developments and their implications.

Carbon Tax & Climate Policy Updates:

Increased Carbon Tax Rate:

• The carbon tax rate increased from R236 to R308 per tonne of CO2e from 1 January 2026.
• The carbon fuel levy will also increase from 1 April 2026, with petrol rising by 5c/litre to 19c/litre and diesel by 6c/litre to 23c/litre.

Carbon Tax Proposals:

• Separating carbon fuel levy from general fuel levy: Government proposes formally separating the carbon fuel levy from the general fuel levy following SARS system upgrades. A new Part 5C will be inserted into Schedule No. 1 of the Customs and Excise Act to allow the carbon fuel levy to be administered independently, improving transparency and administrative clarity.

• Carbon tax thresholds for 1A4a activities: Because many commercial and institutional organisations use backup diesel generators only during load‑shedding and thus generate very low emissions, Treasury acknowledges that the administrative effort required to comply with carbon tax rules is disproportionately high for these entities. To reduce this burden, Treasury proposes replacing the current capacity‑based threshold of 10MW(th) for IPCC category 1A4a activities with a simpler 25 000 tCO₂e annual emissions threshold, effective 1 January 2026.

• Refunds for carbon budget compliance: The carbon budget refund rules, proposed in the 2025 Taxation Laws Amendment Bill, are being clarified to remove uncertainty. Government will delete the unclear reference to “the immediately preceding tax period” and specify that companies may claim refunds in year 3 for the first two tax periods, and then again in year 6 for years three to five of the five‑year carbon budget cycle. This ensures refunds align with more accurate emissions and tax assessments. The amendments will take effect on a future date to be set by the Minister of Finance.

• Customs and Excise Act Amendment: To support the revised carbon budget refund mechanism, the Customs and Excise Act will be amended to allow refunds to be claimed beyond the current two-year prescription period, accommodating the longer five-year carbon budget cycle.

• Carbon Offsets Framework: National Treasury continues considerations to modernise South Africa’s carbon offsets regime. Following the 2025 consultation paper, reforms aim to enhance market integrity, clarify regulatory frameworks and stimulate low-carbon investment. In parallel, Treasury will pilot the Common Carbon Credit Data Model (CCCDM) in 2026 to improve data standardisation and interoperability across carbon markets. If successful, the CCCDM may be integrated into South Africa’s domestic carbon market framework.

Energy:

The 2026 Budget underscores continued reform to stabilise electricity supply and accelerate private investment in clean energy infrastructure. Major structural reforms underway include:

• Electricity Market Restructuring: The National Transmission Company of South Africa has advanced key licensing steps, paving the way for a competitive electricity market. Regulatory reforms aim to enable transparent grid access and facilitate large‑scale private generation participation.

• Renewable Energy Procurement Progress: Four new REIPPPP Bid Window 7 projects were announced, adding 890 MW and an estimated R16 billion in investment. Five renewable projects finalised construction in late 2025, contributing 440 MW to the national grid.

Grants and Tax Incentives:

Section 12L Energy Efficiency Tax Incentive:

• No changes were made to the section 12L tax incentive. The tax rebate remains at 95 c/kWh.

The S11D R&D Tax Incentive:

• The R&D tax incentive aims to encourage private-sector companies to invest in R&D by providing a super-charged 150 per cent deduction for expenditure on eligible scientific or technological R&D carried out in South Africa. This incentive is unchanged and will continue in its current form for the foreseeable future.

Support Programme for Industrial Innovation (“SPII”):

• The SPII grant continues in its current form to support businesses undertaking innovative projects with cash grants.

DTIC Incentives & Industrial Growth:

• The DTIC will continue administering existing incentive programmes to support industrial development, competitiveness and localisation, with R16.9 billion allocated over the medium term. Existing manufacturing and infrastructure grants remain in place, providing targeted support for investment, industrial infrastructure, SEZs and sector competitiveness.

Concluding Comments:

The 2026 Budget announced no significant new incentives to stimulate industry, despite provisional corporate tax data showing declining revenue collections in the manufacturing sector while other sectors are showing growth in revenue collection.

At the same time, the Budget reinforces South Africa’s lower-carbon transition through higher carbon-linked fuel costs, renewable energy reforms, transmission investment and stronger environmental oversight.

Businesses should reassess carbon tax exposure for 2026–2030, prioritise energy efficiency and renewable or self-generation opportunities, and closely monitor municipal reform developments that may affect long-term tariffs and service reliability.

Catalyst Solutions will continue to support clients in navigating these changes, whilst taking advantage of available savings opportunities.

For additional information or to discuss how these updates may impact your business please contact us.

Christo Engelbrecht: christo@catalystsolutions.global, +27 84 513 8177