The average South African employee is expected to receive a salary increase of between 5.5% and 5.7% in 2025, but experts warn that this will not be enough to offset inflation and tax bracket creep.
One of the big blows dealt to South Africans by the proposed 2025 Budget, apart from the incremental VAT increase of 1% over two years, is that Finance Minister Enoch Godongwana did not adjust the personal income tax brackets for inflation in the 2025/26 tax year.
This move, which is the second tax table non-adjustment in a row, is expected to generate an additional R18 billion in extra revenue for the Treasury, however it also means that South African salary increases are less likely to withstand inflationary pressures.
Tanya Tosen, a tax specialist at Tax Consulting South Africa, warns that although the 2025 inflation rate is expected to be around the 4.3% mark, the average employee will need a salary increase of at least 5% or more, in order to maintain their current spending power.
This is due to many South Africans now being pushed into higher tax brackets without realising it.
High income earners stand to lose the most.For instance, if a person on a R2 million annual salary (R166,000 per month) receives a 5.5% increase, their take-home pay would actually be reduced by R7,000 thanks to tax bracket creep.
In this instance, the employee would need an increase of 6.13% just to break even.
Those earning around R30,000 per month could see their marginal tax rate jump from 26% to 31% if they receive a 4.3% salary hike, ultimately increasing their Pay-As-You-Earn (PAYE) tax rate by almost R4,200 per year.
Momentum wealth manager Jurgen Eckmann provides an even more damaging example of someone earning R30,875 per month, before tax.
Should this person receive a 7% annual increase, the shift to a new tax bracket would result in the annual tax rate rising by almost R10,000, to R83,419.
“If you’re expecting a pay raise this year, don’t assume it will automatically improve your financial situation.
With unchanged tax brackets and rising costs, your salary increase may not go as far as you think,” warns Jerry Botha, Managing Partner at Tax Consulting SA.
He said employers should rethink their tax strategies in order to help employees retain as much of their earnings as possible, and offer flexible benefits to suit their personal and financial requirements.
Furthermore, the South African Revenue Service is threatening to clamp down on high-income earners who are evading the system.
Those earning over R1 million, a little over 340,000 people, contribute nearly 48% of all tax income, yet it’s estimated that at least 100,000 earners in this range are not paying their fair share.
