Stealth Tax Increases Quietly Drain South African Wallets in 2025 Budget

While much of the attention around South Africa’s 2025 budget has focused on headline-grabbing changes like the VAT hike and frozen tax brackets, a series of smaller, less noticeable tax increases are set to take effect from April. These “stealth” taxes, though less visible, will significantly impact households and businesses alike.

Carbon Tax Hike Leads the Charge

One of the most significant stealth tax increases is a 24.2% hike in South Africa’s carbon tax. According to Nazrien Kader, Old Mutual’s group head of tax, this increase has largely flown under the radar but will have a substantial impact on consumers and businesses. The carbon tax hike is part of the government’s broader strategy to address environmental concerns, but it also serves as a revenue-generating measure.

Households Face Multiple Burdens

In addition to the carbon tax, households will feel the pinch from above-inflation adjustments to sin taxes on alcoholic beverages and tobacco. Environmental levies, such as the plastic bag tax and the incandescent lightbulb levy, are also set to increase. These adjustments are expected to contribute an additional R1 billion to government revenue in 2025.

While some relief is provided by the zero-rating of additional food items and the decision not to adjust the general fuel levy for inflation, these measures are unlikely to offset the overall financial strain on households.

Frozen Tax Brackets and Medical Aid Credits

Kader highlighted that the true “stealth” tax lies in the National Treasury’s decision to leave various inflation thresholds unchanged. Tax brackets will remain frozen in the 2025/26 financial year, and medical aid tax credits will also stay at previous levels. This “sleight of hand” move is expected to generate R1.5 billion from unchanged medical tax credits and an additional R18 billion from bracket creep on income tax.

“Whilst South Africans may feel that they have partially dodged the 2% VAT bullet, individual taxpayers have been let down once again – left to carry the can with a real tax increase of R19.5 billion,” Kader said.

Corporate Tax Adjustments

It’s not just individuals who will feel the impact of these stealth taxes. Despite the corporate tax rate remaining at 27%, the National Treasury expects to collect more revenue from companies through the implementation of Global Minimum Tax measures. This “top-up” tax will apply to the ultimate holding companies of multinational enterprises operating in South Africa.

The Global Minimum Tax Act and Global Minimum Tax Administration Act, signed into law in 2024 and backdated to 1 January 2024, are based on the OECD Global Anti-Base Erosion (GloBE) rules. These rules aim to prevent tax losses due to multinational enterprises operating in tax havens. The tax is expected to raise an additional R8 billion annually from the 2026/27 fiscal year.

VAT Exemption Review for Importers

Another area under scrutiny is the VAT exemption for low-value goods imported into South Africa. Treasury has indicated that this exemption will be reviewed to ensure tax parity between online purchases and local retail transactions. This move is expected to address concerns raised by the local retail sector regarding competition from offshore online platforms like Temu and Shein.

Consultancy firm PwC noted that this review could help level the playing field for local retailers, who have long argued that the VAT exemption gives foreign online platforms an unfair advantage.

South Africa’s 2025 budget introduces a series of stealth tax increases that, while less visible than headline changes like the VAT hike, will have a significant impact on both households and businesses. From the carbon tax hike to frozen tax brackets and corporate tax adjustments, these measures are expected to generate billions in additional revenue for the government. As South Africans navigate these changes, staying informed and planning accordingly will be crucial to mitigating the financial impact.

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