Small businesses will breathe a little easier following a significant change in the 2026 national budget. Minister of Finance Enoch Godongwana announced that the compulsory Value-Added Tax (VAT) registration threshold will rise from R1 million to R2.3 million in annual turnover.
The change is expected to reduce administrative burdens and provide much-needed breathing space for companies still establishing themselves in the market. Emerging farmers and micro-enterprises, who often face strict financial and administrative pressures, stand to benefit significantly.
For poultry farmer Ephraim Bango of Bango Poultry Farm, the increase addresses a longstanding challenge. “Many small businesses struggle to access affordable finance due to strict requirements…this increase will allow small businesses like mine to retain more revenue and focus on growth instead of compliance,” he said.
Citizen input and government response
The increase follows citizen engagement initiatives by the Treasury. One such submission came from Renette Oosthuizen, a small business owner from Gauteng, who urged the government to raise the threshold. She noted that the previous limit had not kept pace with the cost of doing business.
“Minister Godongwana, please increase the VAT registration threshold for small businesses to R2 million. The R1 million threshold has not kept pace with the cost of doing business,” Godongwana quoted Oosthuizen’s submission.
“Renette [Oosthuizen], you will be happy to know that in this budget the compulsory VAT registration threshold increases from R1 million to R2.3 million,” Godongwana said in response.
Understanding VAT and the Threshold
VAT is a tax charged on most goods and services sold in South Africa. Businesses that exceed a certain annual turnover are required to register, charge VAT to customers, and remit it to the South African Revenue Service (SARS).
The “VAT threshold” determines when a business must register. Until now, companies earning over R1 million per year were obliged to comply with VAT regulations, a process that can be time-consuming and costly for small businesses. With the new threshold of R2.3 million, businesses earning below this limit are no longer required to register for VAT, reducing compliance costs, accounting complexity, and administrative burdens.
Other measures to support small businesses
The 2026 budget also introduces additional relief for small business owners.
The capital gains tax (CGT) exemption for the sale of a small business by older persons has been raised from R1.8 million to R2.7 million, now applying to businesses valued at R15 million instead of R10 million. This measure is designed to allow business owners to retain more of their proceeds when selling, encouraging entrepreneurship and growth.
Practical impact on small businesses
The VAT threshold increase is expected to save SMMEs thousands of rand annually in accounting and compliance costs. This means, a business earning R2 million per year will no longer have to file VAT returns, freeing up resources to reinvest in operations, purchase stock, or hire staff.
Tax analysts say the measure will be particularly impactful for township-based and informal businesses, giving them a stronger incentive to formalize without facing immediate VAT obligations. By easing administrative burdens and improving cash-flow flexibility, the change allows small business owners to focus on expansion and long-term planning.
“This is a targeted measure to support entrepreneurship,” said Noxolo Mkhize, a tax analyst.
“It reduces the paperwork burden for small business owners and provides more cash flow flexibility, which can be critical for businesses in their early stages.”
