Calls for increased VAT threshold aim to unlock SME growth

it-online.co.za · Feb 23, 2026 · Collected from GDELT

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As South Africa prepares for the 2026 National Budget Speech, SME funder Lula has renewed its call for critical tax reforms after first engaging the National Treasury on this call in 2025. The funder specifically proposes an increase in the compulsory VAT registration threshold from R1-million to R3-million to unlock liquidity within the SME sector. Garth Rossiter, chief risk officer at Lula, notes that while the current economic climate shows “green shoots” of positivity, characterised by stabilising inflation and improved business confidence, the R1-million VAT threshold remains a “glass ceiling” that disincentivises small business expansion. According to Rossiter, the current threshold, which has remained unchanged for years despite significant inflationary pressure, forces many small business owners to choose between growth and administrative survival. “We are seeing a trend where businesses intentionally cap their productivity to stay under the R1 million mark,” says Rossiter. “Whether it is a psychology practice choosing to consult four days a week instead of five, or a specialised dry-cleaning business turning away new contracts, the message is the same: the cost of VAT compliance often outweighs the benefit of marginal growth. “By tripling this threshold to R3-million, the Minister can instantly unlock the productivity of thousands of ‘stuck’ SMEs.” Lula argues that the long-term fiscal benefits of this move far outweigh the immediate VAT revenue loss. By allowing businesses to scale without complex monthly filing, the economy will likely gain through increased corporate tax from higher profits and expanded employment. Beyond tax reform, Rossiter emphasises that the 2026 Budget must signal a shift toward long-term infrastructure certainty. For the SME sector, which contributes roughly 40% of South Africa’s GDP, the “basics” remain the biggest hurdles to sustainability. “Government’s role is to create a conducive environment so that the private sector can do the job of creating employment,” Rossiter explains. Following a proposal submitted to the National Treasury in late 2025, Lula received feedback that the proposal would be considered for the 2026 Budget cycle. Rossiter believes now is the time for the Minister to show that the government is serious about clearing obstacles to economic activity. “In an election year, the focus often shifts toward short-term spending or quick fixes. However, the SME sector needs a move away from constant firefighting toward a predictable, long-term plan. While some emergency measures are necessary, they aren’t a growth strategy. We need a longer-term plan for energy and water expansion that businesses can actually bank on. The need for this planning is urgent. In his recent SONA, the President noted R50-billion in new digital investment, including 55 data centres. But there is a clear contradiction here: data centres consume massive amounts of power. You can’t build a digital economy on a grid that isn’t growing. To protect that R50-billion investment and prevent more load-shedding, we need a growing energy supply with clear milestones and real accountability. “A business-friendly budget is the most sustainable way to build pro-government sentiment and investor confidence,” Rossiter concludes. “If we fix the tax environment and guarantee the basics such as power, water, and logistics, then the SME sector will drive the growth South Africa needs. We don’t need the government to create jobs; we need them to create the environment where SMEs can.”