South Africa’s Budget Speech Unveils Bold Moves on Data Infrastructure and Tax Incentives
South Africa’s Budget Speech Unveils Bold Moves on Data Infrastructure and Tax Incentives
By Barry Visser
In the latest Budget Speech it is evident that Government is targeting digital innovation, investment, and inclusive urban growth.
Data Infrastructure Recognised as Key Economic Driver
As global reliance on data and artificial intelligence accelerates, these technologies are fast becoming critical engines of economic growth. Recognising their importance, the South African government has elevated data infrastructure to the same priority level as traditional assets such as electricity, ports, and transport networks.
In the latest Budget Speech, the Minister outlined plans for new strategies in 2026 to boost investment in data centres and related infrastructure. These efforts aim to position South Africa as a leading digital innovation hub on the African continent, supporting the expansion of advanced technologies and attracting international investment.
The announcement also signals positive prospects for research and development (R&D) activity. Recent changes to the R&D Tax Incentive now allow for claims related to software developed for internal systems, such as ERP platforms, fintech solutions, logistics engines, and internal AI tools, which were previously excluded. This policy shift is expected to drive greater uptake of the R&D Tax Incentive, encouraging businesses to invest in innovation.
Refining Special Economic Zone (SEZ) Incentives
Currently, companies operating in South Africa’s SEZ’s benefit from a reduced corporate tax rate of 15%, compared to the standard 27%. However, strict criteria disqualify companies if more than 20% of their transactions involve related parties outside the SEZ, a rule designed to prevent profit shifting.
These regulations have, at times, impeded existing businesses and discouraged new investors interested in reinforcing supply chains within the zones.
In response, the Minister has proposed a more flexible approach in assessing whether transactions with connected parties outside SEZs are conducted at market rates. This aims to foster investment while maintaining fair tax practices.
Urban Development Zone (UDZ) Incentive Set for Review
The government will also review the UDZ tax incentive, which is designed to rejuvenate inner city areas through property related tax allowances. The focus is shifting towards supporting affordable housing in locations close to jobs, public transport, and essential services, an approach that aligns with Operation Vulindlela’s mission to reduce spatial inequality.
A stakeholder workshop is scheduled for 2026 to discuss targeted changes to the UDZ incentive, with formal proposals expected for the 2027 Budget.
South Africa’s latest Budget signals a proactive approach to driving digital transformation, refining incentives for investment, and fostering more equitable urban development.