In a blow to personal income taxpayers, the National Treasury announced that tax brackets and rebates would not be adjusted for inflation in the 2025/26 tax year.
This marked the second consecutive year that the personal income tax (PIT) brackets had remained unchanged, exacerbating the issue of “bracket creep.” This occurs when inflation-linked salary increases push taxpayers into higher tax brackets, resulting in a higher tax burden without an official rate hike.
By leaving the tax brackets and rebates the same, Treasury effectively imposed a stealth tax, which will be felt in the take-home pay of salaried workers, particularly those in the lower- to middle-income bracket, warns Carla Rossouw, head of tax at Allan Gray.
This lack of adjustment fuels bracket creep, also known as fiscal drag – a phenomenon where inflation-driven salary increases push earners into higher tax brackets, effectively raising their tax burden without an official rate hike.
“Without inflationary adjustments, taxpayers may find themselves earning more but proportionately taking home less, as a greater portion of their increased income is swallowed by tax. It has become a quiet lever used to increase revenue without officially raising tax rates,” said Rossouw.
She said that many may feel that their salary increases are not really helping them pay the bills.
The example below highlights the impact of bracket creep.
| Details | 2024/2025 Tax Year | 2025/2026 Tax Year (5% Increase) |
|---|---|---|
| Annual Taxable Income | R510,000 | R535,500 |
| Income Tax Calculation | R77,362 + 31% × (R510,000 – R370,500) | R121,475 + 36% × (R535,500 – R512,800) |
| Income Tax | R120,607 | R129,647 |
| Less Primary Rebate | R17,235 | R17,235 |
| Total Income Tax | R103,372 | R112,412 |
| Income After Tax | R406,628 | R423,088 |
| Change in Income After Tax | N/A | R16,460 |
This table illustrates how Mr. X’s income tax increases due to the lack of adjustment in the tax brackets, even though his income only grew by 5%. This highlights the impact of “bracket creep,” where inflation-linked salary increases push an individual into a higher tax bracket, increasing their tax burden.
Although Mr X’s income has increased by 5%, his after-tax income only increased by 4.05%, which results in a monthly reduction in purchasing power.
This means that Mr X will be able to buy less with his after-tax income than he is currently able to buy. The problem is exacerbated with the rebates (primary, secondary and tertiary) also not being adjusted for inflation, said Rossouw.
Similarly, Kelly Wright and Aneria-Bouwer from legal firm Bowmans said that the PIT burden has been steadily increasing for more than a decade and bracket creep is increasingly common. “While it is easy to overlook the impact of fiscal drag when assessing it on a year-on-year basis, it becomes more pronounced when assessing the impact over a 10-year basis.”
The cited the following example:
Assume your gross annual pay on 1 March 2015 was R200,000. For the 2016 tax year, that means you would have paid R24,191 (an effective rate of 12.1%) in tax.
In today’s money, that is approximately R318,919, and for the 2026 tax year, you would pay R46,716 (an effective rate of 14.65%) in tax (ie you would pay more tax on the ‘same’ salary). Even though you remained in the same tax bracket, your effective tax rate increased from 12.1% to 14.65%.
A taxpayer in the top bracket would have seen their effective rate increase from 35.85% to more than 37%. A person who earned R1.5 million in the 2016 tax year would have paid R522,797 in tax (an effective rate of 35.85%).
If the income is increased by inflation to R2 391 893 in the 2026 tax year, the tax would increase to R885,956 (an effective rate of 37.04%).
Taxpayers who contribute to medical aid schemes would further have had to stomach the pain of below-inflationary increases of medical scheme fees tax credits. “The position is even worse for taxpayers relying on savings, as the interest exemption has not been increased in the last 11 years,” Bowmans said.
