Taxpayers hit as VAT rises, but grants get a boost

The recent budget update has brought some significant changes to taxation and social grants. As of May 1, 2025, the Value-Added Tax (VAT) rate will increase by 0.5 percentage points, and another 0.5 percentage points in April 2026, bringing the total VAT rate to 16%.

This VAT hike is expected to generate R13.5 billion in revenue for the government in the 2025/26 financial year. However, to mitigate the impact on lower-income households, the government will expand the basket of VAT zero-rated food items to include products like tinned vegetables, dairy liquid blends, and certain meat products.

On the other hand, social grants will receive a boost, but not as significant as initially proposed. The social development function will receive R422.3 billion in 2025/26, with social grant spending making up 81% of this allocation. The grants will increase by R8.2 billion over the medium term, which is lower than the initially proposed R23.3 billion.

Some of the grant increases include:

- Old-age, war veterans, disability, and care-dependency grants*: increasing by R130

- Foster care grant: increasing by R70 to R1,250

-Child support and grant-in-aid: increasing by R30 to R560

It's worth noting that the government has also decided not to adjust the personal income tax brackets for inflation, which may result in taxpayers being pushed into higher tax brackets.

“The government is very aware of the cost-of-living pressures faced by households, including high food and fuel prices and rising electricity and transportation costs. This is why we are taking concrete steps to protect vulnerable households. This is done through providing social grant increases that are above inflation; 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“.