Small and medium sized enterprises received a major boost on Wednesday when Finance Minister, Enoch Godongwana, announced in the 2026 National Budget Speech that the compulsory VAT registration threshold will increase from R1 million to R2.3 million.
The change, which comes into effect on 1 April 2026, amends section 23(1)(a) of the VAT Act, which requires any business with taxable supplies exceeding R1 million over a 12 month period to register for VAT. The voluntary registration threshold will also increase from R50 000 to R120 000.
The increase responds to concerns from small business owners that the existing threshold no longer reflects the rising cost of doing business. Here is what the change means for SME’s:
1. If your taxable turnover is below R2.3 million in any 12 month period, you are not required to register for VAT.
2. You avoid the administrative burden of monthly or bi-monthly VAT returns, strict invoice requirements and potential SARS audits.
3. Cash flow improves because you do not need to charge 15% VAT to customers and then wait to claim input tax credits.
4. You can price more competitively, especially when selling to customers who cannot reclaim VAT.
Where a business does not exceed the new compulsory threshold as at 1 April 2026, it may apply to deregister for VAT in terms of section 24(1) of the VAT Act.
Together with other small business measures in the budget, including higher capital gains tax exemptions on the sale of qualifying small businesses, this change signals an effort to ease pressure on SME’s, largely regarded as the backbone of job creation in South Africa
