South Africans face higher VAT, personal tax changes, and a weakening rand as Budget 2025 is passed.
The National Assembly has passed the Fiscal Framework of Budget 2025, introducing a 0.5% VAT increase effective from 1 May. This change comes as the rand weakened to R18.80/dollar, reflecting investor concerns. South Africans must brace for rising costs, especially as personal tax changes and excise duty hikes on alcohol and tobacco take effect.
Higher VAT, But Some Relief for Vulnerable Households
Finance Minister Enoch Godongwana announced measures to cushion low-income households from the VAT hike. These include:
- An increase in old-age, disability, and child support grants above inflation.
- Additional food items added to the zero-rated VAT basket, including canned vegetables, edible offal, and dairy liquid blends.
- No increases in the general fuel levy or the RAF levy to curb the rising cost of living.
Personal Income Tax and Sin Tax Increases
Consumers will also feel the pinch in personal income tax, as no inflationary adjustments will be made to tax brackets, rebates, or medical tax credits. Additionally, excise duties on alcohol and tobacco will increase above inflation, further impacting household budgets.
Investor Confidence Declines as Rand Weakens
The passing of the budget saw bond yields surge by 40 basis points, indicating a decline in investor confidence. The rand lost nearly 30 cents in one day, settling at R18.80/dollar. Economic uncertainty remains a concern as South Africa navigates the effects of fiscal changes.
What This Means for South Africans
With higher VAT and tax adjustments, South Africans should prepare for increased expenses. However, grant increases and VAT exemptions on essential goods offer some relief for lower-income households. As the rand weakens, the cost of imports may rise, potentially leading to further price hikes on essential goods.
Final Thoughts
The Budget 2025 introduces both challenges and relief measures. While consumers face increased taxes and a weaker currency, the government’s adjustments to social grants and zero-rated food items aim to mitigate the burden. As these changes take effect, South Africans must plan accordingly to manage rising expenses.
Also read: Salary Increase You Need to Keep Your Head Above Water Due to 2025 Tax Changes in South Africa
