VAT Threshold Increase: Good News on Paper, But Hidden Costs Linger

By Kagiso Nonyane

The Minister of Finance announced increase to the compulsory VAT registration threshold has been widely welcomed at least at first glance. For many small and medium‑sized enterprises struggling under administrative pressure, the change appears to offer long‑awaited relief. But as with many policy shifts, the fine print reveals complexities that businesses must carefully consider before celebrating.

The Value Added Tax Act currently requires any vendor whose taxable supplies exceed R1 million over any consecutive 12‑month period or who is contractually expected to exceed that amount to register for VAT and begin accounting for output tax to SARS.

In the latest budget announcement, the Minister of Finance confirmed that this compulsory registration threshold will rise to R2.3 million. The move is intended to ease the administrative and compliance burden on smaller businesses and is positioned as part of broader efforts to support entrepreneurship and reduce red tape.

However, experts caution that “not all that glitters is gold.” While deregistration may seem attractive particularly for businesses hovering just above the current threshold there are significant financial implications that may leave some vendors worse off.

Under section 8(2) of the VAT Act, any vendor who deregisters becomes liable for output tax on all assets and rights capable of assignment, cession, or surrender that they hold immediately before ceasing to be a VAT vendor. This “deemed supply” is treated as if the assets were sold right before deregistration.

For many businesses, particularly those holding  substantial equipment, vehicles, intellectual property, or trading stock, the resulting tax liability could be sizeable, potentially outweighing any administrative benefit associated with deregistration.

In short, while the increase in the VAT threshold is a welcome administrative reform, it comes with financial repercussions that every affected business must assess. As the saying goes: relief today may mean a tax bill tomorrow. The potential cash flow impact especially for those businesses who do not have easy access  to funding and who may already be struggling due to the current economic climate may be severe.

It should also be noted that the Minister announced that the VAT Voluntary registration threshold will increase from R50 000 currently to R120 000.

The new registration threshold will come into effect on 1 April 2026.

Business owners are advised to evaluate the value of their assets, consult tax professionals, and weigh the long‑term implications before making any decisions. Deregistration may be beneficial for some, but costly for others. And in the complex ecosystem of tax policy, the true impact often lies beneath the headline figures.