For the second year in a row, Treasury has left personal income tax brackets and rebates unchanged – effectively handing South Africans a stealth tax in this year’s Budget. It will be felt in the take-home pay of salaried workers, particularly those in the lower- to middle-income bracket, warns Carla Rossouw.
The decision to leave personal income tax brackets and rebates the same in the 2025/2026 tax year is a blow to taxpayers, squeezing lower- to middle-income earners further.
This lack of adjustment fuels bracket creep, also known as fiscal drag – a phenomenon where inflation-driven salary increases push earners into higher tax brackets, effectively raising their tax burden without an official rate hike.
In the previous Budget – leaked in February and hotly contested, which ultimately resulted in the postponement of the Budget speech – Treasury had proposed partial relief by adjusting lower tax brackets and rebates in line with inflation. This was intended to offset the impact of the 2% VAT hike. However, in 2025/2026, no such relief has been offered, meaning lower- and middle-income earners will bear a heavier tax load. Instead, a 0.5% VAT increase over two years was proposed by Finance Minister Enoch Godongwana in his March Budget speech, raising VAT to 16% by April next year. This was approved by a small majority in April 2025.
Less spending power
Without inflationary adjustments, taxpayers may find themselves earning more but proportionately taking home less, as a greater portion of their increased income is swallowed by tax. It has become a quiet lever used to increase revenue without officially raising tax rates.
Indeed, many may feel that their salary increases are not really helping them pay the bills. The example below highlights the impact of bracket creep.
Mr X’s income and tax for the 2024/2025 tax year
Annual taxable income: R510 000
Income tax: R77 362 + 31% x (R510 000 - R370 500) = R120 607 – R17 235 (primary rebate) = R103 372
Income after tax: R510 000 – R103 372 = R406 628
Mr X’s income and tax for the 2025/2026 tax year if his income increases by 5%
Annual taxable income: R535 500
Income tax: R121 475 + 36% x (R535 500 - R512 800) = R129 647 – R17 235 (primary rebate) = R112 412
Income after tax: R535 500 – R112 412 = R423 088
Although Mr X’s income has increased by 5%, his after-tax income only increased by 4.05%, which results in a monthly reduction in purchasing power. This means that Mr X will be able to buy less with his after-tax income than he is currently able to buy. The problem is exacerbated with the rebates (primary, secondary and tertiary) also not being adjusted for inflation.
How to keep saving and investing
Against this, consider adjusting your financial plans. Make sure you maximise your tax-efficient investments. By contributing more to your retirement fund, for example, you can reduce your taxable income while growing your wealth, while tax-free investment accounts allow you to benefit from tax savings on your investment return.
Another way to beat bracket creep is to strategically negotiate a salary increase that outpaces inflation and bracket creep. Other options are to diversify your income streams by considering a side hustle or reducing unnecessary expenses.
Finally, consider working with an independent financial adviser (IFA) to ensure your financial plan isn’t derailed. Your IFA can devise tailored tax and investment strategies which can help mitigate bracket creep’s impact over time.