Two weeks ago, Renier Kriel wrote an opinion piece for The Open Letter outlining three reforms that could unlock hiring, funding and growth for South Africa's 2.67 million small businesses. At the top of his list: raise the compulsory VAT registration threshold from R1 million to at least R2 million.

On Wednesday, the finance minister did exactly that. And then went further.

The compulsory VAT registration threshold has sat at R1 million since 2009. Adjusted for inflation, that R1 million is worth roughly R2.2 million today, which means thousands of small businesses have been dragged into a compliance regime designed for a different economic era. 

For a small operation covering rent, salaries and running costs, crossing R1 million in revenue is almost inevitable. But handling VAT collection, filing and administration on thin margins is a different story.

Godongwana raised the threshold to R2.3 million, effective 1 April 2026. He credited the change to the government's "Tips for the Budget" programme, specifically naming a Gauteng small business owner called Renette Oosthuizen who had written in asking for the adjustment. 

SME funder Lula had formally lobbied the National Treasury for an increase to R3 million. They got R2.3 million, which is broadly an inflation catch-up rather than an aggressive reform, but it is still the single most meaningful change to SME tax compliance in nearly two decades.

The voluntary VAT registration threshold also increased from R50’000 to R120’000, and the annual turnover limit for the turnover tax moved from R1 million to R2.3 million. 

In addition to this, for micro businesses, the first R600’000 of turnover is now exempt from turnover tax, up from R335’000. 

Together, these changes mean fewer small businesses will be forced into complex tax administration before they're ready, and very importantly, leave them with more cash for growth. 

The budget delivered several other South African business reform measures aimed at entrepreneurs and SMEs. Capital gains tax exemptions for small business asset disposals increased from R10 million to R15 million. The CGT exclusion for business owners over 55 selling their company rose from R1.8 million to R2.7 million. 

For savers among us, the tax-free savings annual limit also went from R36’000 to R46’000. And personal income tax brackets were adjusted by 3.4% to address bracket creep, the first full inflation adjustment in years.

No new taxes were introduced. The proposed R20 billion in tax increases from the May 2025 budget was withdrawn entirely, made possible by higher-than-expected tax collections. The VAT rate stays at 15%.

The trade-off came through the fuel levy (petrol up 19c per litre, diesel up 18c per litre) and excise duties on alcohol and tobacco, up by as much as 6.75%. These hit small businesses in transport, logistics, and hospitality, and they partially offset the relief delivered elsewhere.

It's worth being clear about what R2.3 million represents. The threshold should have been moving incrementally every year or two, as it does in many other tax jurisdictions. The fact that it didn't is the failure. The fact that it now has is a correction, not a breakthrough.

Lula's proposal of R3 million would have gone further, pushing beyond inflation to create genuine breathing room. At R2.3 million, many growing SMEs will still hit the threshold within a year or two of finding their feet. The question is whether Treasury treats this as a reset or as a one-off.

There is also a timing question. The withdrawal of R20 billion in proposed tax increases was only possible because tax collections exceeded expectations. If that reverses, the fiscal room for further business reform in South Africa tightens. 

The relief is welcome, but it is not yet locked into a structural trajectory.

Peter Attard Montalto wrote in Business Day that after the budget, delivery is up to line departments. Most reforms, he argues, have less to do with money than with finding the right people and getting processes working between institutions. That observation applies directly to the SME reforms still missing from this budget.

Labour law flexibility for early-stage companies doesn't require large fiscal outlays. ESOP regulation reform is a policy design challenge, not a spending challenge. A capital gains rollover mechanism for angel investors reinvesting into startups would likely be revenue-neutral or positive over time. These are the reforms that could turn a decent budget into a genuine shift in how South Africa supports its entrepreneurs.

The VAT threshold change matters. It will make a real difference to thousands of businesses navigating the gap between survival and growth. But if South Africa is serious about business reform that drives employment, the conversation has to move beyond thresholds and into the structural changes that shape how founders build, hire and raise capital.

Watch this space.

This news first featured in our Feb ‘26 post on 800 times faster insurance quotes in SA.

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