Tax hikes and inflation: Why South African salary increases aren’t enough in 2025

Cape Town – South African employees may struggle to keep up with the rising cost of living despite salary increases, as tax burdens grow due to the government’s failure to adjust tax brackets for inflation.

According to Daily Investor, tax expert Tanya Tosen explains that with inflation expected at 4.3% in 2025, workers actually need at least a 5% raise just to maintain their spending power. However, many will be pushed into higher tax brackets, leading to greater tax deductions.

For instance, high earners making R2 million per year will see their take-home pay shrink by nearly R7,000 with a 5.5% raise, while middle earners earning R30,000 per month could see their marginal tax rate jump from 26% to 31%, Tosen said.

She attributes this to Finance Minister Enoch Godongwana’s decision not to adjust personal income tax brackets for inflation in the 2025/26 tax year.

More flexible salary structures 

“That means many people will be pushed into higher tax brackets without realising it, leading to more tax deductions and less money in their pockets,” IOL quoted Tosen as saying.

To mitigate this, Tosen advises businesses to adopt more flexible salary structures, prioritising take-home pay over non-cash benefits to help employees retain more of their earnings.

Public sector workers, despite securing a 5.5% raise, will also feel the impact, as they actually need a 6.13% increase to offset the lack of tax bracket adjustments.

Meanwhile, according to BusinessTech, economists warn that as the government increases the tax burden on South Africans, more taxpayers will seek legal ways to minimise their tax payments. The country has already exceeded the Laffer Curve threshold, where higher taxes lead to reduced revenue collection.

High-income earners, in particular, have more options to shield their wealth, with some even choosing to end their South African tax residency. Over the past decade, thousands of millionaires have left the country, costing SARS significant revenue. In 2024 alone, SARS lost R3 billion in potential tax due to 38,000 taxpayers exiting the system.

Despite this, SARS is intensifying its crackdown on high earners in 2025. Commissioner Edward Kieswetter recently revealed that many individuals earning over R1 million annually are not even registered for tax. He also noted that R800 billion in revenue remains unpaid.