South Africa’s small businesses have welcomed the recent increase in the VAT registration threshold, but experts caution that opting out of VAT may carry hidden risks.
Finance Minister Enoch Godongwana announced in the 2026 National Budget that the threshold has been lifted from R1 million to R2.3 million, effective 1 April 2026. The move followed public input through the “Tips for the Budget” initiative, where a Gauteng business owner highlighted that the threshold had remained unchanged for 17 years despite rising costs.
Relief with Conditions
The higher threshold is expected to ease compliance burdens and give SMEs more flexibility. Businesses below the new limit no longer need to file VAT returns, and those selling directly to consumers may benefit from competitive pricing by removing VAT from their invoices.
However, deregistration is not a simple administrative step. It’s a tax event, and it can trigger immediate liabilities that businesses may not have anticipated.
The Trade-Offs
While deregistration can improve cash flow and reduce paperwork, it also means losing the ability to claim input VAT on expenses. For businesses with significant overheads, this can erode margins quickly.
Consumer-facing businesses with low input costs may see little downside, but those serving VAT‑registered clients could face challenges. If your customers are VAT vendors, they expect you to be VAT‑registered too, otherwise, your pricing effectively becomes more expensive to them.
Planning Ahead
SMEs to take a longer-term view. Companies approaching turnover of R1.8 million should prepare for re‑entry into the VAT system, as SARS requires registration within 21 business days once the threshold is exceeded.
Preparation includes tightening bookkeeping and ensuring systems are in place for compliance. VAT registration should be treated as a strategic decision, not a tick‑box exercise.
The threshold increase is a welcome relief, but deregistration is not a one‑size‑fits‑all solution. SMEs must weigh the benefits of simplified compliance and consumer pricing against the loss of input VAT recovery and potential client expectations. For many, the smarter move may be to stay registered despite falling below the new limit.
