For thousands of South African entrepreneurs, this week’s budget speech was more of a line drawn. On the one hand, the government has finally eased red tape, arguably one of the biggest pressure points facing small businesses today, but on the other, they have made it unmistakably clear that revenue collection will tighten.
The increase in the compulsory VAT registration threshold from R1m to R2.3m is the most significant administrative relief small businesses have seen in over a decade. The biggest budget takeaway for SMMEs is that yes, there is more room for you to grow, but there is absolutely nowhere to hide when it comes to noncompliance.
For years, the R1m threshold acted as both a trigger point and a trap. Once crossed, businesses were required to register for VAT, submit returns every two months, maintain complex accounting systems and appoint tax practitioners to manage compliance. For lean operations running on tight margins, this translated into time and money diverted away from growth.
Most entrepreneurs tend to not even realise that they have crossed the line until it’s too late. I have seen so many businesses grow over R1m in turnover, only for the South African Revenue Service (Sars) to flag their non-registration months later, meaning the business has to pay backdated VAT, penalties and interest, often wiping out hard-earned profits.
By lifting the threshold to R2.3m, the government has removed this invisible ceiling, allowing small businesses to scale with less fear of triggering an immediate administrative burden. It reduces compliance costs and, importantly, reduces the anxiety that has led some entrepreneurs to deliberately slow their growth to avoid the VAT net.
For early-stage entrepreneurs, this is important cash-flow support during the most fragile phase of a business’s life.
Yet this relief must not be misunderstood. The budget speech offered little change for already VAT-registered businesses, and the new threshold does not automatically deregister anyone either. Businesses consistently trading below R2.3m can apply for deregistration, but that decision should be strategic. If you anticipate growth in the next two years, remaining registered could position you better with suppliers and clients.
Beyond VAT, the budget contains several targeted adjustments that strengthen the small business ecosystem. The tax-free turnover threshold for micro businesses has increased significantly, with the first R600,000 now exempt from tax, up from R335,000. For early-stage entrepreneurs, this is important cash-flow support during the most fragile phase of a business’s life.
The voluntary VAT registration threshold has also been raised, from R50,000 to R120,000, simplifying entry for very small firms that want to participate in formal supply chains. In addition, the capital gains tax exclusion for individuals over 55 disposing of small business assets has increased from R1.8m to R2.7m, while the market value limit to qualify as a small business for capital gains tax purposes has been lifted from R10m to R15m. These measures support succession planning and encourage long-term investment in entrepreneurial ventures.
There is also a broader macroeconomic context worth noting. The strengthening primary surplus and projected stabilisation of debt suggest that fiscal consolidation is gaining traction. That matters for business confidence, as stability at a national level reduces the risk premium and creates a more predictable operating environment.
The challenge now lies in execution and discipline.
However, none of this changes the central reality that Sars will be intensifying revenue collection. On the sidelines of the budget, outgoing Sars commissioner Edward Kieswetter suggested that as our economy is not growing at an anticipated rate, the revenue service will continue to collect more, and approximately one-third of the collection will come from compliance efforts. Simply put, more revenue will be collected from penalties and interest if returns are not submitted on time.
Even with an under-pressure economy, compliance cannot remain a box-ticking exercise, with even dormant companies now required to submit returns. Late filings, incomplete submissions and administrative neglect will attract penalties and interest that small businesses can ill afford.
In my experience, most noncompliance is not deliberate. It stems from overstretched owners trying to manage so many things that administration becomes an afterthought. But that approach is becoming increasingly risky. The budget offers breathing room, but not immunity.
For SMMEs, there is a chance to use this opportunity intelligently. Formalise financial systems, invest in sound bookkeeping, and seek advice before making structural decisions about VAT registration or deregistration.
South Africa’s growth outlook remains modest, with projections hovering around 2% over the medium term. Small businesses will carry much of the responsibility for job creation and innovation, and the budget acknowledged this by reducing friction at key growth thresholds. The challenge now lies in execution and discipline.
- Mtwentwe is MD of Vantage Advisory and host of the SAICABIZ Impact Podcast
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