South Africans receiving salary increases exceeding 5% in 2025 may find themselves worse off financially due to stagnant tax brackets. Despite earning more on paper, many individuals will take home less money as a result of bracket creep, a phenomenon where salary increases push earners into higher tax brackets, increasing their overall tax liability.
Key Takeaways
- Bracket Creep is Reducing Real Earnings: The government’s decision to keep tax brackets unchanged means that salary increases will push many South Africans into higher tax brackets, resulting in higher deductions and lower take-home pay. Even a 5% raise may not be enough to maintain purchasing power.
- Businesses and Employees Must Adapt: Companies may need to rethink salary structures to help employees retain more of their earnings. Flexible remuneration options, such as tax-efficient benefits or performance-based incentives, could provide some relief against rising taxation.
- Wealth Migration and Tax Avoidance Are Increasing: High-income earners continue to seek ways to legally reduce their tax obligations, with some opting to leave South Africa entirely. SARS is aggressively targeting high earners to recover lost tax revenue, but this approach may accelerate the exodus of wealth and skilled professionals.
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Tax specialists at Tax Consulting South Africa have cautioned that the South African Revenue Service (SARS) is expected to claim a larger share of earnings in the coming tax year. This follows the National Treasury’s decision to extract an additional R18 billion from the tax base without adjusting tax brackets to accommodate inflation. This decision, according to financial analysts, is nothing short of a direct hit on middle-class and high-income earners, forcing them to bear the brunt of the government’s revenue shortfalls while essential services continue to suffer from mismanagement and inefficiencies.
No Tax Bracket Adjustments in the 2025 Budget
Finance Minister Enoch Godongwana confirmed in the 2025 Budget Speech that personal income tax brackets will remain unchanged, meaning that even modest salary increases could result in taxpayers moving into higher brackets. This effectively means that South Africans are being stealthily taxed more without any official announcement of a tax rate increase. The government is not explicitly saying it is taxing people more, but by failing to adjust for inflation, that is exactly what is happening.
The South African Reserve Bank’s latest projections indicate that inflation in 2025 is expected to hover around 4.3%, with some estimates as low as 3.6%. This means that any salary increase above these levels will be subject to higher taxation, ultimately reducing the financial benefits of a pay raise. At face value, an increase might seem like a step forward, but in reality, it is a disguised setback. While employees hope for better financial stability, they may instead find themselves paying thousands more to SARS while their cost of living continues to rise unchecked.
Many employees will unknowingly fall into higher tax brackets, leading to increased Pay-As-You-Earn (PAYE) deductions. This will leave them with less disposable income, despite an apparent salary boost. The impact of this will be felt most acutely in household budgets, where monthly expenses such as rent, food, and transport will continue to rise. Families who believe they are receiving a well-earned raise may soon realise they are struggling even more to make ends meet.
How Much of an Increase Is Needed to Maintain Spending Power?
According to Tanya Tosen, a Tax and Remuneration Specialist at Tax Consulting South Africa, employees require a minimum salary increase of 5% just to maintain their current purchasing power. Anything below this threshold would mean they are effectively earning less in real terms. This means that if an employee gets a raise of only 4%, they are actually losing money in practical terms. Their buying power shrinks, and their financial situation worsens, despite the illusion of a higher paycheck.
Speaking during a recent webinar hosted by CPD Consortium, Tosen outlined how bracket creep affects different income groups:
- A high-income earner receiving an annual salary of R2 million who is awarded a 5.5% salary increase could see their take-home pay shrink by almost R7 000 due to moving into a higher tax bracket. To avoid financial loss, this individual would actually need a 6.13% increase instead. For top earners, this is not just a minor inconvenience—it is a significant financial blow. It means professionals and executives who already pay substantial taxes are now being squeezed even harder, with SARS taking a bigger bite out of their income.
- A middle-income earner with an annual salary of R360 000, receiving a 4.3% salary increase, would see their marginal tax rate rise from 26% to 31%. Without tax bracket adjustments, their PAYE tax burden would increase by nearly R4 200 per year, significantly reducing their disposable income. For the average South African worker, this means the cost of petrol, groceries, school fees, and medical aid will take up an even bigger portion of their salary, leaving them with little to no extra financial breathing room.
Even public sector employees, who have negotiated a 5.5% salary increase for the 2025/26 financial year, will experience the effects of bracket creep. These workers would actually require a 6.13% salary increase just to keep pace with inflation and avoid higher taxation.
This is particularly concerning given that many public sector workers, such as teachers, nurses, and police officers, already feel underpaid and overworked. Now, even their hard-fought increases may end up benefiting SARS more than the employees themselves.
SARS Looking for Additional Revenue
Heading into 2025, salary and tax experts anticipated that average salary increases would fall between 5.5% and 5.7%, subject to individual company policies and financial performance. However, the 2025 Budget has altered the financial landscape, placing additional pressure on businesses and employees alike. The government’s approach appears to be one of taking as much as possible from the working population without implementing any real economic reforms to address inefficiencies, corruption, or mismanagement of state resources.
Companies may need to reconsider how they structure remuneration packages to help employees retain as much of their earnings as possible. Tosen suggested that businesses explore more flexible salary structures to ensure employees receive the maximum benefit. This could include shifting towards performance-based incentives, increasing retirement contributions, or offering allowances that are taxed differently. However, not all businesses have the flexibility to make these adjustments, meaning many workers will have to accept the harsh financial consequences of bracket creep.
Employers may need to shift towards higher take-home pay options rather than providing non-cash benefits. Alternative strategies, such as customisable salary packages and flexible benefits tailored to personal financial goals, could help employees optimise their earnings under the current tax framework. For employees, this means negotiating for smarter pay structures rather than blindly accepting a salary increase that will ultimately be eroded by taxation.
Growing Concern Over Tax Avoidance and Wealth Migration
Economists have warned that increased taxation could prompt higher-income earners to find ways to legally reduce their tax obligations. South Africa has already surpassed the threshold of the Laffer Curve, which suggests that excessive taxation can drive taxpayers to minimise their contributions or exit the system altogether. This is not speculation—this is a pattern that has already played out. Every year, South Africa loses more high-net-worth individuals to tax-friendly countries that welcome their wealth instead of punishing them for earning more.
High-income earners, who have more financial options at their disposal, may take steps to legally shield their earnings from excessive taxation. In some cases, taxpayers may go as far as renouncing their South African tax residency, resulting in lost revenue for SARS. This exodus of wealth is not just a loss of tax revenue—it is a loss of business investments, job creation, and economic growth. The government’s continued reliance on taxing an already overburdened middle and upper class is creating a long-term economic problem that will be difficult to reverse.
Over the past decade, thousands of high-net-worth individuals have left South Africa, taking their wealth with them. This has had a notable impact on tax collection, with SARS estimating that it lost R3 billion in collectable tax revenue in 2024 alone, as 38,000 taxpayers officially ended their tax residency. The trend is clear: the more the government clamps down on high-income earners, the more they look for ways to leave. If SARS continues to tighten the grip, it may only accelerate the loss of skilled professionals, business owners, and investors.
Despite this ongoing trend, SARS has committed to targeting individuals it believes are underpaying tax in 2025. Commissioner Edward Kieswetter has pointed out that many high-income earners, particularly those earning over R1 million per year, are not even registered for tax. SARS is actively investigating these cases, claiming that approximately R800 billion in overdue revenue remains uncollected.
The question remains: is this an effort to recover genuinely owed taxes, or a desperate attempt to squeeze more out of those who are already carrying the heaviest tax burden?
Conclusion
With no relief from bracket creep and a growing tax burden, South African employees may find themselves financially strained despite receiving salary increases. The government’s strategy of extracting more tax revenue without adjusting for inflation is placing pressure on both individuals and businesses, leading to difficult financial decisions. As SARS intensifies its efforts to collect outstanding tax, high-income earners may explore further legal tax reduction strategies or even move their wealth offshore. Unless meaningful reforms are introduced, the long-term impact of this taxation policy could be a shrinking tax base, fewer skilled professionals in the workforce, and an economy that continues to struggle under the weight of increasing financial pressures.
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