Come for the VAT hike, stay for the bracket creep

Finance Minister Enoch Godongwana, delivered the 2025 National Budget speech and it was painfully clear: South Africa has too many spending commitments and too little revenue to fund them.   

The VAT increase 

Instead of the sudden 2% hike, the government will raise VAT in stages: to 15.5% in 2025/26 and 16% in 2026/27. While this approach is less severe, it will still add to the financial strain on everyday South Africans. This approach allows the government to avoid direct tax hikes, but it does little to address South Africa’s long-term revenue challenges and puts more strain on taxpayers.    

Did you know:  

• 1.5% of the population, pay 60.9% of all personal income tax in the country  
• Only 1,074,000 people earn above R500 000 income, and pay 83% of the tax.  
• 235 542, or 0.4%, pay 33% of all personal income tax in a country with a population of 62 million. The fiscus will gain almost R19.5 billion because to bracket creep. 

*Source: SARS statistics (Tax Statistics | South African Revenue Service) 

 Two-pot retirement system 

The two-pot retirement reform, which came into effect on 1 September 2024, has seen higher-than-expected tax revenue from withdrawals, reaching R11.6 billion by the end of February 2025, more than double the R5 billion initially projected. Government is also considering further changes, looking at whether individuals who are retrenched should be allowed to access funds from their retirement component. Discussions are ongoing, and any potential changes will be included in Phase 2.  

Upgrades to the infrastructure  

• Over R1 trillion is set aside for infrastructure 
• R402 billion has been allocated for transport 
• R219 billion has been allocated for energy 
• R156 billion has been allocated for water 

 Additional notable changes from the National Budget  

• The budget will prioritise key social services, such as committing R19.1 billion to retain 11,000 teachers and R28.9 billion for 9,300 healthcare workers.  
• Early Childhood Development (ECD) subsidy sees its first increase in five years, a notable but overdue correction. 
• Pension and disability grants will increase increasing by R130, and the R350 Social Relief of Distress (SRD) grant extended another year. 
• Tobacco products such as cigarettes, and vaping products are set to rise by 4.7% while pipe tobacco and cigars will increase by 6.75%. 
• A 5.6% increase has been allocated to infrastructure and public sector wages. 
• Public debt should stabilise at 75.5% of the GDP by 2025/2026. 
• 22 cents of every taxpayer’s money will be used to cover the national debt. 
• R4 billion over three years has been allocated to enhance tax collection capabilities. 
• Allocations have been made which include R8.5 billion in indirect grants and R1.4 billion indirect grants for NHI initiatives.