Tax Season 2026 and the Risks of Refund-Anticipation Borrowing

Tax Season 2026 And The Risks of Refund-Anticipation Borrowing

As tax season opens with billions in refunds already released, National Debt Advisors points to a growing risk among distressed middle to high income earners who are taking on short term credit in anticipation of tax refunds.

South Africa’s 2026 tax season has opened with a strong focus on auto assessments, faster processing and early refund payments. By 1 July 2026, SARS had auto-assessed more than 1.9 million taxpayers and paid out about R8 billion in refunds within 72 hours.

For many taxpayers, this is positive. However, Sebastien Alexanderson, Head of National Debt Advisors, says the speed of the process can create a financial planning risk when consumers treat an expected refund as available income before it has cleared.

“A tax refund should only be treated as available cash once it has been paid into the taxpayer’s account,” says Alexanderson. “Until then, it remains subject to SARS processes, including verification, offsetting, compliance checks and potential adjustment.”

According to Alexanderson, debt counsellors often see consumers make short-term borrowing or spending decisions based on expected once off income, including tax refunds, bonuses, and retirement withdrawals. The risk is highest where the expected amount has already been allocated to multiple expenses before it is received.

“The issue is not whether the refund is useful. It often is. The issue is sequencing,” he says. “If a consumer takes on credit before the refund is paid, and that refund is delayed or reduced, the household has created an additional repayment obligation without the cash inflow it was relying on.”

This risk is especially relevant following the introduction of the two-pot retirement system. SARS has stated that taxpayers accessing savings pot withdrawals must remain tax compliant, with tax deducted from withdrawals and any amounts owed to SARS potentially deducted before payment.

SARS has also confirmed that under- or over-deductions linked to these withdrawals are reconciled during annual filing. Many consumers have now had two tax years in which retirement savings withdrawals, outstanding tax balances, or prior-year compliance issues may affect their final SARS position.

“The two-pot system has added another layer to personal tax planning,” says Alexanderson. “A taxpayer may believe they are due a refund based on PAYE, medical credits or retirement contributions, but the final outcome can be affected by earlier withdrawals, tax debt, penalties, interest or outstanding returns.”

The scale of withdrawals shows why this is not a marginal issue. SARS’ official update published on 31 January 2025 recorded 2,664,279 tax directive applications for savings withdrawal benefits, of which 2,403,379 had been approved, with R43.42 billion paid out in gross lump sums.

Alexanderson says the practical concern is that some consumers may plan around an expected refund without first checking whether SARS has a prior claim against it.

“For households with limited monthly surplus, even a moderate refund delay can create pressure,” he says. “If the taxpayer has already used short term credit to bridge expenses, a delayed or reduced refund can turn a cash flow mismatch into a debt repayment problem.”

He says the risk is heightened by the current economic environment, with households still pressured by fuel, medical aid, municipal accounts, food prices and previous interest rate increases. As a result, once-off payments are often used to settle arrears rather than for discretionary spending.

Alexanderson recommends that taxpayers take several steps before making financial commitments linked to an expected SARS refund.

1. Request a SARS Statement of Account before making any refund backed spending decision.
2. Check for outstanding returns, penalties, interest or tax debt.
3. Wait for the refund to reflect before committing it to spending.
4. Use any refund first to reduce expensive debt, arrears, and high-interest accounts.
5. Seek help early if the refund has already been pre-spent and the money does not arrive.

“Refunds should be treated as balance sheet repair, not future income,” he says. “The most effective use of a refund is usually to reduce expensive debt, catch up on arrears, build a small emergency buffer or settle obligations that are attracting interest or penalties.”

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Author: Omega Ngema from Financial Wealth Holdings on behalf of National Debt Advisors.

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