How Income Tax Works in South Africa – It’s Not How You Think

There is a common misconception about income tax that relates to the tables published by SARS on the personal income tax rates, updated each year in line with the Budget.

The misconception is this: you are due for a raise but are worried that the raise (which may be relatively small) will push you into a higher tax bracket and, because a higher percentage of your earnings will go to the taxman, you may receive less after tax than you are getting currently.

But that is not how the brackets in the income tax tables work. A jump to a higher bracket will never result in a reduction in income going into your pocket.

South Africa follows an income tax system utilised in many countries, known as a progressive tax system: the more you earn, the higher percentage of your earnings go to the taxman. But it is not as straightforward as it appears, because you are not taxed at the same rate on all your income.

PERSONAL INCOME TAX RATES: 2025/26

As you can see from the tax table, which applies to the current tax year, the rates are 18%, 26%, 31%, 36%, 39%, 41% and 45%. If, say, you fall into the 36% bracket (your taxable income is between R512 801 and R673 000), you are not paying 36% on all your income; you are paying 36% only on anything you receive above R512 800.

Picture the brackets as rungs on a ladder: on each rung you are taxed at that rate, meaning you are taxed less on income that falls into the lower rungs than income that falls into the higher rungs.

For example, say that, after deductions, your taxable income for the year is R600 000. You pay tax of:

• 18% on the first R237 100 = R42 678

• 26% on the next R133 399 (which is R370 500 – R237 101) = R34 684

• 31% on the next R142 299 (which is R512 800 – R370 501) = R44 113

• 36% on the last R87 199 (which is R600 000 – R512 801) = R31 392

• Total tax: R152 867.

You are then entitled to a rebate, depending on your age. The primary rebate, for taxpayers under 65 years, is R17 235. This brings your tax bill down to R135 632. Thus, the percentage of your taxable income going to SARS is 22.6%.

The rates indicated in the table are known as the marginal rates. But the actual percentage of your income going to SARS is known as your effective or average tax rate. 

So, to recap, on taxable income of R600 000, although your marginal rate is 36% (meaning that you are in the bracket whereby any additional income you accrue is taxed at 36%), your effective, or average, rate is 22.6%.

What if you get promoted and your taxable income jumps to R680 000? Let’s assume the rates remain the same. We don’t have to go through all the sums again, because SARS has worked them out for us in the table. 

According to the table, your tax is R179 147 plus 39% of taxable income above R673 000. The amount above R673 000 is R7 000. Therefore your tax is R179 147 plus 39% of R7 000, or R179 147 + R2 730 = R181 877. If you subtract the primary rebate of R17 235, your final tax bill is R164 642. This translates into an average tax rate of 24.2%.

So, in this example, for an extra R80 000 in income (which pushes you up to the 39% marginal rate), you will pay an additional R29 010 to SARS, but R50 990 will go into your pocket. Only R2 730 of your total tax bill is at the 39% rate.