How much more you could spend on VAT this year

With the value-added tax (VAT) rate set to increase by 0.5 percentage points in 2025/26 and the following year, South Africans will feel the added pressure on their wallets.

Momentum’s Head of Financial Planning and Advice, Bertie Nel, explained to Daily Investor that this VAT hike will add pressure to lower-income households, in particular.

“One of the key takeaways from this year’s budget is the 0.5% increase in VAT, which, although lower than initially anticipated, will still affect consumers,” Nel said.

“For an average household spending R10,000 per month, the VAT adjustment equates to an additional R50 in expenses.”

“While this is significantly less than a potential 2% increase, it still places some strain on lower-income households.”

In comparison, the initial 2% proposed VAT increase would mean that households would be spending R200 extra for R10,000 worth of expenses.

Since lower-income households already have a small disposable income, which they may have to allocate entirely to essential monthly needs, any VAT hike is notable.

However, since a number of extra products were made VAT-exempt, this may not have that much of an effect on how much households spend on essentials.

The previous list of zero-rated foodstuffs included 19 items, including milk, eggs, lentils, and brown bread.

The 2025 Budget proposed expanding the basket of VAT-zero-rated food items to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry, and other animals.

Additionally, the latest Budget also did not increase the fuel levy for another year, which Finance Minister Enoch Godongwana said would save consumers around R4 billion.

Nel explained that since the cost of transport is a substantial expense for both individuals and businesses, not increasing the levy will significantly help their finances.

Individuals will have more disposable income available, and businesses can save on their transport or fuel input costs.

“This is a positive for consumers,” he said.

However, while these measures may offer households some relief, Nel questioned whether adding more zero-rated items wasn’t defeating the purpose of the increase.

Expanding the range of zero-rated essential products, which are vital for lower-income households, is meant to safeguard their disposable income, Nel explained.

“This will, however, offset any gain in additional income due to taxes collected due to the increase in VAT.”

Lower-income households also received a boost in terms of increased social grants in the 2025 Budget.

“It is positive that increases in social grants of between 5.7% and 5.9%, which is in excess of current inflation, will provide relief for those individuals reliant on this,” he said.

“It is, however, concerning that about 28 million beneficiaries are dependent on this compared to 2.5 million in 1994.”

“This places an unsustainable burden on the fiscus and can only be reduced by creating a climate for higher economic growth and more job opportunities.”

The small sliver of tax relief consumers will receive from increasing the list of zero-rated food items is also offset by the fact that personal income tax brackets remained unchanged.

“The Budget has shown that tax brackets have not been adjusted for inflation for the second year in a row.”

This means that if your taxable income stays the same as in the 2024/25 tax year, your tax bill will remain the same.

However, as salaries typically rise with inflation, many individuals will move into higher tax brackets, leading to higher tax payments, less disposable income, and a reduced real increase in earnings.

Nel urged South Africans to implement financial planning strategies to navigate the country’s pending economic pressures.

“It is important for individuals and businesses to align themselves with a financial ‘coach’ to assist them in navigating through economic uncertainties as this requires proactive financial planning.”

“South Africans should partner with trusted financial advisors who can assist them to make informed decisions, adjust their budgets, and plan for long-term stability.”

He added that while the 2025 Budget offers no dramatic tax increases, it also provides no significant relief for individuals and businesses.

“As economic pressures persist, strategic financial management will be essential for both households and companies looking to maintain financial health in the coming year.”