South Africans Need at Least a 5% Salary Increase in 2025 to Offset Tax and VAT Adjustments
South African employees will need at least a 5% salary increase in 2025 just to maintain their current standard of living. This follows the National Treasury’s decision not to adjust personal income tax brackets for the year, leading to what experts call “bracket creep”—where workers effectively pay higher taxes as they move into higher income categories.
How Tax Changes Will Affect Your Salary in 2025
During the revised 2025 National Budget, Finance Minister Enoch Godongwana confirmed that personal income tax (PIT) brackets will remain unchanged, a move expected to generate R28 billion in additional revenue. This means that even if you get a salary increase, you could still end up paying more tax with less take-home pay.
Additionally, while the government initially planned to raise VAT by 2%, it has settled for a 0.5% increase in 2025 and another 0.5% in 2026. The VAT hike is expected to bring in R13.5 billion in revenue for the government in 2025.
How Much of a Salary Increase Do You Really Need?
According to Tax Consulting SA, South African employees will need a minimum of 5% salary increase to keep up with inflation and tax changes.
However, those in higher income brackets may require an even bigger increase. For example:
- Someone earning R2 million annually who receives a 5.5% increase could still end up with R7,000 less in take-home pay due to higher tax brackets.
- A worker earning R30,000 per month (R360,000 per year) will see their marginal tax rate jump from 26% to 31% if they only get a 4.3% raise, leading to R4,200 less in disposable income per year.
- Even public sector workers who negotiated a 5.5% increase for 2025/26 may not feel the benefit unless their raise reaches 6.13%.
What Can Employers Do?
With higher taxes eating into salaries, businesses need to rethink remuneration structures. Tax expert Tanya Tosen suggests that companies offer more flexible salary packages to ensure employees take home more money.
Some of the strategies she recommends include:
- Providing more take-home pay instead of non-cash benefits.
- Customizable salary structures to help employees retain more of their income.
- Flexible benefits to match employees’ personal and financial needs.
Final Thoughts
If you’re expecting a salary increase in 2025, it’s crucial to negotiate wisely. Without an increase of at least 5% to 6.13%, your take-home pay could shrink, leaving you with less money despite earning more.
With rising inflation, VAT, and tax rates, employees should consider alternative salary structures and work with their employers to maximize earnings.
Also read: With VAT Hike on The Cards, Household Food Basket Cost Increases in March
