Although the latest budget avoids the steep VAT hike proposed last month, it still puts significant pressure on taxpayers.

All taxpayers will feel the pinch, as tax brackets and rebates have not been adjusted for inflation - for the second year in a row.

VAT is proposed to rise by 0.5 percentage point this year, with another increase planned for 2026, bringing it to 16%. However, Finance Minister Enoch Godongwana suggested the second hike may be reconsidered. There is still strong political resistance to the VAT hike, so whether it goes through remains to be seen.

Meanwhile, Treasury is scrambling for more funds to manage South Africa’s soaring debt, which has surged from less than R2 trillion a decade ago to nearly R6 trillion, now over 76% of GDP.

Compared to the February budget (which never came to be..) welfare grant spending has been reduced.  Government spending however remains high, increasing by 5.6% next year, including an extra R47 billion for infrastructure projects.

Another key development is that Commissioner Edward Kieswetter's request for additional funding has been granted. Over the next three years, SARS will receive an extra R7.5 billion to help modernize its systems and tackle outstanding tax debt.

This marks a significant victory for Kieswetter, who has long pushed for more resources to strengthen SARS’ ability to recover unpaid taxes - an amount he estimates to be around R800 billion.

Let’s look at each type of tax in more detail.

Personal Tax Rates – no inflation adjustment to brackets for the second year

While personal income tax rates remain unchanged, the tax brackets have not been adjusted to account for inflation. As a result, any inflation-related salary increase you receive this year could push you into a higher tax bracket, leading to increased taxes - this is known as 'bracket creep'. The Treasury often uses this tactic to introduce subtle tax increases that may not be immediately obvious.

The tax-free threshold for taxpayers under 65 years will remain at R95,750 per year. Taxpayers over 65 and below 75 years of age will have their first R148,217 tax-free and those taxpayers over 75 years of age will have their first R165,689 tax-free. These thresholds all remain the same as last year.

Please click on our updated take-home pay calculator to see your salary for the new tax year.

Capital Gains Tax

There were no changes to CGT this year. Individuals still have to include 40% of the gain in their income while companies and trusts still have to include 80% of the gain in their income. The overall maximum effective tax rates are a follows:

• Individuals 18%
• Companies 21,6%
• Trusts 36%

Dividends

The Withholding Tax on Dividends remains the same at 20%.

Estate Tax and Donations Tax

Donations Tax remains unchanged – it is levied on amounts over R100,000 in total per year at 20% and at a rate of 25% on donation values exceeding R30m. Remember that donations between spouses are still tax free! 

The Estate Duty threshold also stays the same - above R3.5m, and up to R30m, estates will be taxed at 20%, and then at a rate of 25% above R30m.

Interest and investment exemptions

The interest exemption thresholds stay at R23,800 for those under 65 years of age and R34,500 for those over 65 and older.

The annual contribution limit for tax-free savings accounts remains unchanged at R36,000 with the total contribution lifetime limit capped at R500,000.

Medical Tax Credit – no inflation adjustment yet again

Similar to the tax brackets, the medical tax credits have also not been adjusted for inflation. You and your first dependent will continue to be allowed a tax credit of R364 (same as last year) and thereafter R246 (also the same) for all other dependents.

Lump sum payouts and the retirement deduction 

The retirement tax tables for lump sums withdrawn before retirement, and for lump sums withdrawn at retirement remain the same as last year. The once-off tax-free amount of R550,000 that can be withdrawn at retirement remains the same as last year.

The retirement laws, which allow for the deductibility of provident, pension and retirement annuity contributions remain the same. The regime allows for a capped 27.5% of the greater of remuneration (i.e., your gross salary and benefits) or taxable income (income after deductions) to the maximum of R350,000 per year.

In September 2024, the new ‘two-pot retirement system’ came into effect which gives retirees more flexibility with regards to accessing their retirement savings earlier. For more details, please click here.

Retirement fund lump sum withdrawal benefits 

Retirement fund lump sum benefits or severance benefits 

Sin Taxes

As always, smokers and drinkers will have to pay more for their sins.

A can of malt beer or cider will set you back an extra 16c per can, wine an extra 48c per bottle, and spirits, a whopping R5.97 per bottle. Smokers will have to cough up an extra R1.04 per packet and an extra R8.49 per 23 grams of rolled cigars!

Fuel levy

A little bit of good news is that the general fuel levy and Road Accident Fund (RAF) levy will remain unchanged for the new tax year.

Small Business Tax

There is no inflationary adjustment to tax brackets and therefore the rates remain the same as last year.

1) Income Tax: Small Business Corporations 

2) Turnover Tax for Micro Businesses

Turnover tax rates have remained unchanged.

Corporate Tax

Having recently been reduced from 28% to 27%, the corporate tax rate will remain at 27% for the year ahead. 

Tax break on phones

Currently, all imported smartphones carry an extra duty of 9%. From the beginning of April, this is falling away for phones cheaper than R2,500.