As South Africa's economy continues to grapple with challenges, the recent 2026 National Budget has introduced a landmark increase in the VAT threshold for SMEs, providing much-needed relief. Read on to discover how these changes could transform the landscape for entrepreneurs across the nation.
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In a landmark move for South Africa's small and medium enterprises (SMEs), the 2026 National Budget introduced significant relief measures, including a staggering increase in the Value Added Tax (VAT) registration threshold to R2.3 million.
This change, announced by Minister of Finance Enoch Godongwana during his Budget Speech, reflects a commitment to reducing unnecessary compliance costs that have burdened SMEs, allowing them to flourish in a challenging economic landscape.
The increase in the VAT registration threshold, from R1 million, directly addresses persistent concerns from business owners regarding rising operational expenses and the heavy weight of compliance requirements that often deflect focus from growth activities.
By raising the threshold, the government has unlocked new opportunities for SMEs, allowing them to reinvest their resources into expanding their businesses rather than allocating significant time and money toward administrative and compliance costs.
According to Simone Cooper, Head of Business and Commercial Banking at Standard Bank South Africa, the change is not merely a symbolic gesture but a tangible intervention aimed at fostering an environment conducive to growth.
“For many SMEs, compliance costs can be disproportionate to turnover,” Cooper said.
Additionally, the budget has made strides in enhancing capital gains tax exemptions for qualifying business owners.
The exemption limit on small business sales for older entrepreneurs has increased from R1.8 million to R2.7 million, while the qualifying business cap has expanded from R10 million to R15 million.
These adjustments are significantly favourable for those looking to exit the business, thereby supporting long-term succession planning that is essential for family-owned businesses.
Echoing the common sentiment in the SME sector, Garth Rossiter, Chief Risk Officer at Lula, said that this increase signals a responsive shift by National Treasury towards more pragmatic taxation policies.
“The former R1 million threshold was a glass ceiling for growth,” he pointed out, reinforcing that the latest VAT amendments create a more hospitable environment for SMEs to thrive.
Also highlighted in the 2026 Budget are the government's efforts to improve regional trade integration in line with the Africa Continental Free Trade Agreement (AfCFTA), which aims to enhance competitiveness and investment opportunities. Godongwana noted that certain cross-border capital flow restrictions would be eased, crucially aimed at positioning South Africa as a strategic investment hub.
On infrastructure investment, the government projects public-sector spending to exceed R1 trillion over the medium term, an ambitious but necessary strategy to dismantle longstanding bottlenecks in transportation and logistics.
This infrastructure push aims to support SMEs, which are often disproportionately affected by logistics inefficiencies and energy constraints.
While the positive changes in the budget are welcomed, Pat Mokgatle, Head of Entrepreneurial Business at BDO SA, reminded us that the projected economic growth of only 1.6% is insufficient to alleviate South Africa's unemployment woes.
“Sustainable growth will depend on the reliability of our infrastructure, efficient payment systems, strong trade corridors, and continued access to finance,” Mokgatle said, emphasising the need for consistent execution of the new measures in support of SMEs.
As South Africa seeks to navigate its future, the 2026 National Budget could mark a decisive turning point for SMEs, an acknowledgement of their vital role as the backbone of the economy and a potential catalyst for job creation and inclusive growth.
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