South Africa’s 2026 Budget has introduced some of the most significant proposed changes to the country’s VAT framework in years, but not through a fresh VAT rate increase. Instead, National Treasury has opted to keep the standard VAT rate at 15 percent while proposing a broader package that raises registration thresholds for smaller firms and rewrites several technical rules in the Value-Added Tax Act.
The shift is important because public debate around VAT over the past year was dominated by the now-abandoned plan to lift the rate to 15.5 percent in 2025 and 16 percent in 2026. Treasury later reversed that path, and the 2026 Budget says the R20 billion in tax increases that had been pencilled in for this year have been withdrawn as the fiscal position improved.
No VAT hike, but a wider legal rewrite
The practical result is that the headline VAT story for 2026 is no longer about a higher rate. It is about structural and administrative reform. National Treasury says the stronger revenue outlook, including higher-than-expected net VAT collections in 2025/26, created room to drop the previously expected tax increases and instead adjust thresholds and limits to support businesses and households.
That matters for South African taxpayers because it changes the burden from a broad-based price increase at till points to a more targeted rewrite of who must register, how certain transactions are treated, and when vendors must submit returns and payments. For businesses, especially smaller firms, the biggest immediate issue is the registration threshold. For tax practitioners and affected sectors, the technical amendments could be just as important.
Higher VAT thresholds for small businesses
The clearest change is the proposed increase in the compulsory VAT registration threshold from R1 million to R2.3 million in annual taxable supplies. The voluntary VAT registration threshold is also set to rise from R50,000 to R120,000. SARS says the effective date for both VAT threshold increases is 1 April 2026.
National Treasury has framed this as a direct measure to reduce the compliance burden on smaller businesses. In his 2026 Budget Speech, Finance Minister Enoch Godongwana said the higher threshold would respond to concerns that the long-standing R1 million trigger had not kept pace with the cost of doing business. Treasury’s Budget Review also shows that the compulsory threshold had not been amended since 2009.
For many smaller enterprises, that could be one of the most meaningful tax changes in the budget. A higher threshold means some businesses will be able to grow further before they are required to register for VAT, file returns and manage the administrative obligations that come with vendor status. Treasury is also proposing to raise the turnover tax annual turnover limit from R1 million to R2.3 million, reinforcing the budget’s broader message that micro and small firms should face less red tape in the tax system.
Technical VAT amendments are also on the table
Beyond the thresholds, Annexure C of the 2026 Budget Review sets out a series of proposed VAT Act amendments that are more technical but potentially far-reaching. These do not change the standard VAT rate, but they do change how specific transactions, sectors and compliance processes would be handled if Parliament later passes the legislation.
Key proposed changes include:
Services to customs controlled area enterprises and special economic zone operators would only qualify for zero-rating if the services are physically rendered in the customs controlled area. Treasury says the current wording has created confusion and the amendment is meant to align the law with the underlying policy position.
Treasury also proposes repealing section 11(1)(f) of the VAT Act, which deals with zero-rating certain gold supplies to listed entities. The Budget Review says tracing unprocessed primary-source gold has become complex and has led to difficult compliance and audit issues for SARS.
On second-hand goods, Treasury wants to tighten the rules around notional input tax deductions by restricting the deduction to no later than the tax period in which the second-hand goods are supplied, subject to the existing five-year prescription rule. The stated aim is to reduce the risk of financial loss to the fiscus where refunds are paid before sellers later claim the deduction.
For electronic services supplied through intermediaries, Treasury proposes making the intermediary the default party responsible for accounting for VAT, unless there is an agreement to the contrary. The Budget Review says this is intended to reduce compliance risks, especially where smaller foreign principals may be difficult for SARS to pursue directly.
Another proposed amendment affects leasehold improvements. Treasury says the current wording can allow a non-vendor lessor to benefit from leasehold improvements in situations where VAT was effectively not incurred by that lessor. The proposal would extend the treatment beyond lessors who are already VAT vendors and create a declaration channel for this purpose.
Treasury also wants to expand documentary requirements for second-hand goods dealers by linking VAT documentation more closely to the Second-Hand Goods Act and its regulations. In addition, tax invoices on the onward supply of second-hand goods where notional input tax was previously claimed would need to disclose the acquisition price and the amount of notional input tax already claimed.
A further compliance change would remove the distinction between eFilers and non-eFilers for VAT deadlines. Treasury proposes a single system under which all VAT vendors would submit returns and make payments on the last business day of the month, rather than keeping the older split deadline model.
What the changes mean
For ordinary consumers, the most important short-term point is that the VAT rate itself remains unchanged at 15 percent. That means the 2026 budget does not introduce the kind of across-the-board VAT price pressure that many households feared during the 2025 tax debate.
For small businesses, the threshold increase could be the most business-friendly part of the package. It may delay mandatory VAT registration for some firms, lower compliance costs and make it easier for growing operators to focus on cash flow and expansion before taking on a full VAT administration burden. That said, some firms may still choose voluntary registration where input tax recovery makes commercial sense.
For tax professionals, e-commerce operators, second-hand goods dealers, exporters and property-related businesses, the technical proposals deserve close attention. Several of the amendments are aimed at tightening administration, reducing loopholes and making compliance rules more explicit. In practice, that often means less ambiguity, but it can also mean more record-keeping and a narrower margin for error.
What happens next
At this stage, these are budget proposals rather than final law. In South Africa’s annual tax process, technical tax amendments announced in the Budget Review are typically carried into later draft tax bills for public comment and then into legislation if approved by Parliament. That means affected businesses and advisers still need to watch the legislative cycle closely before treating every VAT change as final.
What is already clear, however, is that the VAT conversation in South Africa has moved beyond the failed rate-hike fight of 2025. The 2026 agenda is more detailed and more targeted. It is about narrowing uncertainty, adjusting outdated thresholds and giving SARS a tighter legal framework in areas where compliance risks have grown. For small businesses, that could bring relief. For affected sectors, it could also mean a more demanding VAT rulebook in the year ahead.
