How will my provident fund pay-out be taxed?

Only the amount above R22 500 will be taxed at 18%; the first R22 500 will be paid out tax free (assuming she has not previously withdrawn from a retirement fund). She can transfer the full R25 000 to a retirement annuity and not pay any tax, or just the R2 500 - but she is unlikely to find a RA provider who will accept a once-of premium of only R2 500.