The salary increase you need to survive the tax changes for 2025

According to tax experts, following the National Treasury’s tax proposals, a South African employee would need at least a 5% salary increase to maintain their current spending power in 2025.

During the tabling of the revised National Budget, Finance Minister Enoch Godongwana revealed that the National Treasury has now opted for no adjustments to personal income tax (PIT) brackets for 2025.

This was one of the significant trade-offs Godongwana had to implement to cover for a heavily reduced VAT hike in the country.

The minister initially sought to hike VAT by two percentage points to 17% in 2025, but partners within the Government of National Unity rejected this plan.

After careful consideration, the government has still opted to increase VAT, but now only by 0.5%pts in 2025, and a further 0.5%pts in 2026.

The VAT hike is expected to raise R13.5 billion in 2025, much less than the R60 billion it sought to raise through its initial proposal of a two-percentage-point increase.

The decision to not adjust tax brackets is expected to raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27.

However, the freeze on tax brackets means taxpayers fall prey to bracket creep, which could lead to individuals effectively paying higher personal income taxes as they move into higher brackets.

Considering this, experts from Tax Consulting SA said that even South Africans who received a salary hike in 2025 may now find themselves paying more tax with less disposable income.

At the end of 2024, salary experts predicted that average raises would range between 5.5% and 5.7% in 2025, depending on a company’s financial health. However, the 2025 Budget has changed the game.

Inflation for 2025 is expected to be around 4.3%. However, according to Tanya Tosen, a Tax and Remuneration Specialist at Tax Consulting SA, employees actually need a salary increase of at least 5% to maintain their current spending power.

During a recent webinar hosted by CPD Consortium, Tosen broke down what this means for different salary brackets.

She noted that someone earning R2 million annually who receives a 5.5% increase could end up with nearly R7,000 less in take-home pay because of the higher tax bracket.

Looking at what salary increase would negate the additional tax requirements, she said employees who earn this would actually need a 6.13% increase just to break even.

Tosen added that a person earning R30,000 per month or R360,000 annually would see their marginal tax rate jump from 26% to 31% if they received a 4.3% salary increase.

“Without tax bracket adjustments, their PAYE (Pay-As-You-Earn) tax would increase by nearly R4,200 per year, leaving them with less disposable income,” she said.

Even public sector workers who have negotiated a 5.5% salary increase for 2025/26 will feel the impact of higher tax rates.

These employees would require a 6.13% salary increase to keep up with the non-adjusted tax tables.

Tosen noted that this situation should pressure businesses to rethink how they structure salaries. “Companies must consider more flexible remuneration packages to ensure employees get the best value.”

To help South African employees cope with the increased tax burden, she suggests employers offer more take-home pay and a customisable salary structure.

“Instead of non-cash benefits within flexible parameters, if that’s what employees prefer, especially during these tough economic times,” said Tosen.

“Additionally, customisable salary structures to help employees retain as much of their earnings as possible and flexible benefits to suit their personal and financial requirements.”

“The bottom line is that employees should not be worse off where this is correctly designed,” added Tosen.