VAT Thresholds Increased in South Africa’s 2026 Budget: What It Means for Businesses

In the 2026 Budget Speech delivered today by Finance Minister Godongwana, the VAT rate remains at 15% while the government chose to ease the compliance burden for small businesses instead of increasing rates. These threshold adjustments, paired with wider tax relief elsewhere, are meant to keep entrepreneurship alive without sacrificing revenue growth.

Understanding the VAT Changes in the 2026 Budget

The biggest news is that the thresholds finally caught up with inflation. SARS will now expect compulsory VAT registration only once your annual turnover hits R2.3 million, up from the previous R1 million. The voluntary registration threshold jumps from R50,000 to R120,000, giving very small, input-heavy businesses a wider window to opt in if reclaiming input VAT is more profitable than staying out.

• The compulsory VAT registration threshold increases to R2.3 million in annual turnover as of April 1, 2026.
• The voluntary threshold also rises to R120,000, making it easier for micro-businesses to start claiming input VAT when it makes sense.

These changes stem from the “Tips for the Budget” initiative, showing the government is listening to small business concerns about outdated compliance triggers. Strong consumer spending delivered higher-than-expected VAT collections, which let Treasury withdraw the planned R20 billion tax increase and index income tax brackets to full inflation.

Why This Matters for South African Businesses

More businesses will now sit below the compulsory threshold, freeing up time, cash, and paperwork. If your turnover sits between the new R1 million and R2.3 million marks, you no longer have to battle VAT returns, yet you can still volunteer if input VAT recovery is worth the effort. Those who do register will still face SARS scrutiny, especially as digital compliance tools like e-invoicing gain steam, but the overall compliance load shrinks.

For SMEs, the clear win is breathing room. Time spent reconciling, filing, and paying VAT can now go into pricing, staff, and inventory. The higher thresholds also lower the risk that fast-growing micro-businesses get penalised simply because their turnover crossed the old bar unexpectedly.

Impact on Consumers and the Broader Economy

Consumers benefit indirectly: with fewer small suppliers locked into VAT compliance, prices can stay lower, and entrepreneurs can keep reinvesting. The overall economy gains from the signal that the government supports small business resilience rather than widening compliance for every side hustle.

Consumers also gain from VAT stability. With no rate hike, everyday costs remain stable, and zero-rated essentials such as basic foodstuffs continue to be protected. However, the regressive nature of VAT means that any future increases (still widely seen as “when, not if”) would hit lower-income groups hardest. Overall, the budget’s VAT predictability supports a R521 billion contribution in 2026/27 while encouraging small business formalisation and savings. Combined with other relief, such as the increased tax-free savings limit (R36,000 to R46,000), the package pushes toward a more inclusive fiscal framework.

Preparing for the Changes

1. Assess your turnover: if you are under R2.3 million, evaluate whether voluntary VAT registration makes sense for claiming input VAT on business costs.
2. Update your systems: ensure your accounting software handles the current 15% rate accurately and prepare for potential e-invoicing requirements.
3. Stay informed: monitor SARS announcements after April 1 for implementation details.
4. Seek advice: chat to a tax expert to review your VAT status and optimise for the new thresholds.