VAT Threshold Increased to R2.3 Million – What This Means for SMEs
- Mar 3
- 2 min read
The recent Budget Speech introduced a significant amendment to the VAT framework in South Africa:
The compulsory VAT registration threshold has been increased from R1 million to R2.3 million in taxable supplies over any consecutive 12-month period.
This change affects the application of the Value-Added Tax Act 89 of 1991 and specifically the compulsory registration provisions under Section 23(1).
At first glance, this may seem administrative. It is not.
For many SMEs, this is a strategic opportunity.
The Legal Position
In terms of Section 23(1) of the VAT Act:
A person must register as a VAT vendor if the total value of taxable supplies exceeds the prescribed threshold in any consecutive 12-month period.
That prescribed threshold has now been increased to R2.3 million.
Voluntary registration remains possible under Section 23(3), subject to meeting minimum taxable supply requirements and SARS approval. This distinction is important. Registration can be compulsory. Or it can be voluntary. But it should always be strategic.
Why VAT Registration Is Not Automatically Beneficial
There is a misconception that VAT registration is a sign of credibility or growth. Commercially, that is not always true.
Where a business supplies mainly to:
Individuals
Small non-VAT registered businesses
Consumer markets
VAT becomes a pricing issue.
If you are VAT registered, you must levy VAT at 15% on taxable supplies in terms of Section 7(1)(a) of the VAT Act. That 15% becomes part of your selling price unless your customer can claim it back as input VAT.
If your client is not a vendor, they cannot deduct input VAT under Section 16(3). Which means your services are effectively 15% more expensive than a non-VAT registered competitor. In highly competitive SME markets, that matters.
Compliance and Administrative Burden
VAT registration also brings:
Bi-monthly VAT201 submissions
Strict input/output timing rules
Documentary requirements under Section 20 (Tax Invoices)
Record-keeping obligations under Section 55
For a growing business, compliance cost must be weighed against benefit.
When VAT Registration Makes Sense
VAT registration is beneficial where:
Clients are predominantly VAT vendors.
Large capital purchases allow substantial input VAT recovery.
The business operates in B2B environments where VAT is neutral.
Cash flow planning benefits from input credits.
In these cases, VAT is not a cost — it is a pass-through tax.
Why This Increase Is a Welcome Change
The increase to R2.3 million allows SMEs to:
Remain competitive in consumer markets
Reduce compliance burden
Lower administrative cost
Focus on growth rather than regulatory overhead
Most importantly, it gives business owners time to scale before entering the VAT system.
Final Thought
VAT registration is not a badge of honour. It is a commercial decision governed by legislation.
The question is not: “Should I register because I can?” The question is: “Does registering improve my profitability?”
For many SMEs operating below R2.3 million turnover, the answer may now be no and that is perfectly acceptable within the framework of the VAT Act.
If you would like to run the numbers and assess your position properly, we are happy to assist.
Structure first. Tax second.
Unit 28, Korongo House, Zandspruit Boulevard, Hoedspruit, 1380, Limpopo, South Africa
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