Understanding the 2025 Budget: Some Highlights

The South African government’s 2025 Budget introduces several significant changes that could impact your business operations and financial planning. Here’s The Glass Castle’s breakdown of the key highlights:

💼 VAT Increase

The National Treasury will raise value-added tax by 0.5 percentage points on 1 May 2025, and by the same margin on 1 April 1 2026, bringing the rate to 16%. This increase threatens to stoke inflation and deter consumer spending, with retailers and manufacturers among the businesses that will likely be impacted the most. The list of zero-rated food items, that are exempt from the 16% price hike, has been extended and remains in place.

💼 Income Tax

Personal income-tax brackets will not be adjusted to account for inflation, to help compensate for lower-than-anticipated VAT revenue. This means that taxpayers are going to fall prey to “inflationary bracket creep”. For most people, this means less money in their pockets, and those who earn regular salaries, and can’t restructure their packages – are going to be the most affected. Many South Africans who received an inflation-based or higher salary hike in 2025, may now be in a higher tax bracket and pay more taxes.

These proposals for personal income tax will take effect on 1 March 2025 and are projected to generate R19.5 billion in revenue.

💼Social Grants

Social grants will receive increases above inflation. Started in 2020 as part of Covid19 relief, the grant currently amounts to R370 per month and, despite being temporary, supports over 10 million people. The SRD grant, in its current form, will also be extended by a year to end March 2026. R35.2 billion is allocated for the grant.

💼Public Sector Wage

The government is sticking to a deal to lift state workers’ wages by 5.5% in 2025/26, and by the inflation rate over the following two years. This agreement will cost an additional R7.3 billion in 2025/26, R7.8 billion in 2026/27 and R8.2 billion in 2027/28.

💼Sin Tax Increase

Godongwana proposed raising excise duties on alcoholic beverages, pipe tobacco and cigars by 6.8% and on cigarettes and vaping products by 4.8% from 1 April 2025.

💼Fuel Levies

The minister confirmed that the general fuel levy will remain frozen for another year. Additionally, the Road Accident Fund (RAF) levy and the customs and excise levy will also stay unchanged.

However, it’s important to note that not all fuel taxes are being frozen. Starting in April, motorists will still face higher fuel taxes due to a significant increase in the carbon fuel levy, which will rise by over 366%. And, as mandated by the Carbon Tax Act of 2019, the carbon fuel levy will rise by 3 cents per litre from 2 April 2025, bringing the total to 14 cents per litre for petrol and 17 cents per litre for diesel.

In conclusion, with these projected increases, businesses should prepare for potential changes in interest rates and economic conditions. Staying informed and adapting to these changes is crucial for maintaining financial health and capitalizing on new opportunities.

For personalized advice and comprehensive financial planning, contact The Glass Castle today. 💻

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