Finance minister Enoch Godongwana has introduced extra “stealth” taxes on South Africans by failing to adjust income tax brackets and medical aid credits for inflation in his budget, tax specialists say.
They estimate that Godongwana’s strategy will suck an additional R18.2bn from the pockets of taxpayers in this election year.
“With no inflationary adjustment to the tax brackets or increase in salary, taxpayers will have to cover the increased cost of goods and services with the same take-home pay, leaving them worse off,” said Zohra de Villiers, a tax specialist at KPMG.
In January, the Reserve Bank forecast headline inflation for 2024 of 5%, within its 3%-6% target range but still above its desired 4.5% midpoint.
At face value, the budget makes some allowances for taxpayers burdened by high interest rates and a sluggish economic environment.
“This budget made an apparent concession to the financial pressure under which taxpayers are struggling by not raising personal tax... [but] the minister’s refusal to adjust the tax brackets for inflation is in effect a stealth tax,” said Tertius Troost, a senior tax consultant at Mazars.
“When a taxpayer receives an inflation-related salary increase, the increase might push him or her into a higher tax bracket, and thus [they] pay more tax.”
The effect of both is identical, but the latter is more subtle and less obvious to the casual observer as there is no explicit tax increase
— Kyle Mandy
Personal income tax is the biggest revenue contributor and will hit almost R740bn in financial 2025.
Those who pay income tax, about 7.4-million people out of a population of 62-million, will contribute about 40% to tax revenue.
To collect an additional R15bn in tax revenue, the National Treasury had two choices, said Kyle Mandy, a partner at PwC: raise VAT or raise personal income taxes.
He said the two ways to raise revenue through personal income taxes were either to adjust tax brackets for inflation and raise tax rates, or to keep the tax rate unchanged but allow inflation to do the job.
“The effect of both is identical, but the latter is more subtle and less obvious to the casual observer as there is no explicit tax increase,” he said.
An inflation adjustment for personal income tax would prevent tax bracket creep — a movement from a lower tax bracket to a higher bracket by way of inflation. The adjustment ensures that taxpayers remain in a similar position.
By not adjusting for inflation, the Treasury has enabled a year-on-year increase in revenue from personal income tax by almost 14% for financial 2025, while other taxes have increased in line with the standard of 6%-8%, said Sarika Rautenbach, a partner at KPMG’s employment tax division.
"Where exactly is this money coming from and what is it that we’re going to do to get that money? The answer is nothing. We are doing nothing. By just doing nothing... we are raising [an additional] R18bn and that’s coming from the individuals' pockets.”
Rautenbach said 2.7% of taxpayers, about 200,000 people, will be responsible for R137bn between them of the budgeted income tax, a significant portion of the personal income tax being paid.
“Nothing much has changed, but there is a lot changing in the background and the individuals will end up carrying the bulk of the tax bill, albeit not very in your face; very stealth-like, we’ve been handed this extra bill to carry.”
The Treasury is also raising sin taxes by more than inflation and implementing the global minimum corporate tax, measures that are expected to yield an additional R8bn in corporate tax revenue in financial 2027.
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