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Tax Bracket Creep and VAT Hike: OUTA Calls for Urgent Tax Reform

Neelam Rahim | neelam@radioislam.co.za

3-minute read
26 March 2025 | 15:05 CAT

South Africans are feeling the pinch as tax bracket creep and VAT hikes tighten financial pressures. OUTA warns that frozen tax brackets and rising VAT will deepen economic strain on households and businesses.

South Africans are facing a silent but devastating financial strain as tax bracket creep continues to drain incomes, with the government failing to address inefficiencies and recover lost revenue. The Organisation Undoing Tax Abuse (OUTA) has strongly opposed the National Treasury’s 2025 budget proposals, which include a VAT increase and another year of frozen tax brackets.

Wayne Duvenhage from OUTA highlights the impact of tax bracket creep, explaining that it unfairly burdens taxpayers. “Every year, inflation rises, and Treasury should adjust tax brackets accordingly. When they don’t, people effectively pay more tax on their salary increases, leaving them with less take-home pay. This is unfair to workers and a subtle way for the government to increase revenue.”

According to Duvenhage, over the past 14 years, tax brackets have been adjusted below the inflation rate 11 times. “This has cost the average taxpayer earning just over R300,000 annually an extra R85,000 in taxes. If brackets had been adjusted properly, this money would have remained in people’s pockets.”

Treasury’s decision to freeze tax brackets for the second consecutive year means taxpayers will continue to bear this burden, effectively contributing an additional R18 billion annually in taxes. Duvenhage argues that while the government insists these measures are necessary, inefficiencies and corruption remain unaddressed. “We see massive wasteful expenditure, maladministration, and corruption flagged by the Auditor-General every year, yet instead of fixing these issues, they keep taking more from taxpayers.”

Adding to these concerns, Treasury is proposing a VAT increase of 0.5 percentage points for 2025/26, followed by another 0.5 in 2026/27, raising VAT to 16%. OUTA warns that this will deepen inequality, disproportionately affecting low- and middle-income households while also negatively impacting employment and business investment. “VAT affects everyone, but the poor feel it the hardest. Businesses suffer from reduced sales, and the economic impact spreads widely,” Duvenhage explains.

OUTA urges Parliament’s Standing and Select Committees on Finance to reject these tax increases. Instead, they propose alternative revenue collection strategies, such as improving SARS’ capacity to recover lost tax revenue and addressing government waste. “There are over 100,000 tax evaders that SARS has identified but lacks the resources to pursue. Recovering those funds should be a priority, not increasing VAT or failing to adjust tax brackets.”

Additionally, OUTA suggests considering a temporary fuel levy increase as a last resort. “If the government desperately needs short-term cash flow, a 50-cent increase in the fuel levy could generate revenue immediately and be reversed after six months or a year.”

Duvenhage also highlights that despite conducting 270 spending reviews since 2021, which could have saved R19 billion, the government has failed to implement the recommended changes. “This is the real issue—there are solutions, but they are ignored. Instead, the government continues to squeeze citizens for more money.”

As Treasury defends its tax measures as necessary, concerns remain that these are short-term fixes masking deeper structural issues. With Parliament set to deliberate on these proposals, the pressure is on for greater accountability and meaningful reform. OUTA insists that until the government prioritizes efficiency and tackles corruption, taxpayers should not be expected to shoulder an increasing burden.

Listen to the full interview on Your World Today with Annisa Essack and Wayne Duvenhage here.

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