VAT relief at last: Why small businesses are breathing again
27 March 2026
The 2026 Budget Speech brings a major and long overdue win for small businesses in South Africa. After 16 years of no change, the compulsory Value-Added Tax (“VAT”) registration threshold has been increased from R1 million to R2.3 million, with the change taking effect on 1 April 2026. The voluntary VAT registration threshold has also been raised, increasing from R50 000 to R120 000, also effective 1 April 2026.
Under the current provisions of the ValueAdded Tax Act 89 of 1991 (“VAT Act”), any person carrying on an enterprise is required to register for VAT once their taxable supplies exceed R1 million in any consecutive 12month period, or if they are contractually expected to surpass that amount. With the upcoming increase, this requirement will only apply once taxable supplies reach the new R2.3 million threshold for a compulsory VAT registration.
For years, the old threshold pushed small businesses into VAT registration long before they were ready. Many small business owners struggled with the cashflow pressure of having to pay VAT even when their customers hadn’t paid them yet. This often forced small businesses to dip into savings or reserves just to stay compliant. In addition, the administrative burden, whether doing VAT returns themselves or paying someone else to do it, added even more strain.
The new registration threshold finally reflects the economic reality that operating costs, inflation and business pressures have all increased dramatically since the original R1 million limit was set. Government has acknowledged this in the 2026 Budget Speech, noting that small businesses have carried too much compliance pressure for far too long.
But There Are a Few Things to Watch Out For
While the change is overwhelmingly positive, some small businesses that now fall below the new threshold may consider deregistering for VAT which comes with certain implications:
VAT may become payable on deregistration
Section 8(2) of the VAT Act requires VAT to be paid on the value of assets, such as stock or equipment, when they deregister. This could create a onceoff cost that needs proper planning.
No more input tax claims
Without VAT vendor status, small businesses cannot claim VAT on expenses anymore, which may increase operating costs for companies that buy VATinclusive goods or services.
Administrative adjustments
Deregistering and updating internal processes can take time and may require additional resources.
A Positive Shift Overall
The increase of the VAT registration threshold gives small businesses more room to grow, manage cash flow and focus on operations rather than paperwork.
Overall, this move shows that government is paying closer attention to the real world challenges facing South Africa’s entrepreneurs.
Author
Sindisiwe Zinyongo
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