Laura du Preez | 18 August 2025
Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses.
The turnover threshold for businesses to register for VAT has not been increased for 16 years creating an economic and administration burden for smaller businesses that are forced to charge and collect this tax, a panel of tax experts at the recent Tax Indaba agreed.
If the turnover threshold or limit for registration for VAT had been adjusted for
inflation annually since the last increase in 2009, it would now be around R2.1 million, Leonard Willemse, a director of tax specialists, AJM, told the South African Institute of Taxation’s annual Tax Indaba that took place in Johannesburg last week.
Instead businesses, sole proprietors and consultants who invoice for services of more than R1 million in any tax year need to register for and charge VAT on their goods or services.
Willemse said being obliged to register as a VAT vendor places an additional compliance burden on any business with a turnover above R1 million as it then needs to file VAT returns and maintain a good invoicing system.
Secondly, once you are registered, you are less competitive than a business or sole proprietor who is just below the threshold, which can result in an unfair playing field, he said.
Complying with VAT requirements is not easy, so most small businesses need to engage a tax adviser to help them even though at a turnover of R1 million a year, their profit margins are probably quite thin, Charles de Wet, executive consultant for tax at ENS, said.
Severus Smuts, a director of indirect tax at Deloitte, said small businesses need help with their VAT returns because they don't know how to file these on eFiling, deal with requests for VAT verifications from the South African Revenue Service (SARS), respond to SARS correctly or implement record keeping that meets SARS’s standards.
They do not have time to manage these VAT problems and the record keeping, he added.
The unintended consequences are that the little bit of profit that they make in the first or second year after reaching the threshold is paid away to just manage VAT, he said.
In addition, many small businesses have to fund VAT upfront which causes a cash flow problem, he said.
If you are trading as a sole proprietor in your own name or in a partnership and your taxable supplies in the tax period do not exceed R2.5 million, you can account for VAT when the payment for goods or services on which VAT should be charged is made and received, rather than when you invoice. This is known as the payment or cash basis of accounting for VAT.
The threshold for this payment basis of accounting for VAT has also not been increased for inflation and should possibly increase to at least R5 or 10 million, Smuts said.
Bothma said a service provider with low VAT input costs who is suddenly obliged to register for VAT will either have to adjust prices at the risk of losing a client or adjust thin margins.
Small businesses in the service industry whose end consumer is a natural person are the hardest hit, as businesses serving other businesses that are registered for VAT already can claim the VAT as an input tax, Willemse said.
South African VAT legislation does not consider whether a business serves consumers or other businesses, he added.
Smuts says plumbers or electricians who reach the VAT threshold have to tell their clients that they need to increase their hourly rate by 15 percent.
With the South African Reserve Bank targeting inflation of three percent, this would make a 15 percent increase in prices required for VAT equivalent to five years of inflation-related increases.
The alternative is to keep your prices the same and to reduce your margin by 15 
percent, but it is unlikely small businesses are making a 15 percent margin and this demonstrates why the VAT threshold needs to change, Smuts said.
Panelists said some businesses are considering splitting their work across more than one entity in order to stay below the VAT threshold, but this could be regarded as tax avoidance.
De Wet said that among a number of VAT-related thresholds that had not been increased for a very long time was the R30 million turnover threshold for larger businesses that must file VAT returns monthly instead of every two months.
A R30 million turnover business is no longer a significant-sized business, making large margins and the threshold dates back to 1991 – if it had been adjusted for inflation it would now be about R216 million, he said.
The compliance burden of VAT is significant and small businesses need to accommodated by lowering the difficulty of doing business but the thresholds are now so low that South Africa is overburdening small businesses with paperwork, De Wet said.
Andre Bothma, founder of tax consultancy Irhafu, said the turnover threshold below 
which businesses can make use of the simplified tax on turnover is also R1 million. This has not been increased since this small business tax was implemented in 2012.
Bothma says there are also problems with the turnover tax as small businesses electing to use it cannot register online and their assessments take two months to be issued.
Smuts said the economic policy of obliging smaller businesses to register for VAT should be considered - how much tax was being collected after the costs of administering the registration and return submission of the many smaller businesses that reach the threshold is taken into account.
There's a lot of job losses in the market resulting in many skilled people being unemployed. They become entrepreneurs, they start their own business, they start to consult, Smuts said.
He said it may be better to allow these entrepreneurs and small businesses some breathing space to grow larger before they need to charge and collect VAT.
Unless the policy decisions that were at play years ago when thresholds were set have changed, thresholds like the R1 million for registration should be considerably higher, he said.
Smuts said the cost of administering VAT collection from small businesses should also be considered in relation to what is referred to as the tax gap – South Africans who are evading tax and/or committing fraud.
Would it not be better to spend resources ensuring that tax fraud – such as VAT input tax fraud that amounts to big money - is prevented than to force small fish businesses whose turnover exceeds the R1 million threshold to collect VAT, he said.
Mabutho Mthembu, associate director of tax at SNG Grant Thornton, said bringing small fish into the VAT net is likely to squeeze them to death, to the detriment of the other government priorities which deal with socioeconomic needs of the country.
SARS’s objective is to collect as much revenue as they possibly can, but small businesses need an enabling environment to thrive and create jobs to support the economy, he said.
Small business owners in the services sector complain the most about VAT because they have to declare and pay VAT on their services before they even collect payment and they have limited input tax to claim, Mthembu said.
It would also be a travesty and counter-productive if government’s efforts to collect tax resulted in small businesses who do not know how to comply, falling into a tax debt trap because they didn’t comply, he said.
Willemse said comparing the VAT thresholds to those in other countries, South Africa falls within the average threshold requirements among OECD countries.
Some countries like Mexico, Chile and Turkey do not have thresholds and only require corporates to register for goods and services taxes. Others have low to mid-tier thresholds, such as the equivalent of R440 000 in Germany, R420 000 in Canada and R900 000 in Australia, he said.
Some developed countries like France, Ireland, Japan and the UK have higher thresholds, such as the equivalent of around R2 million in the UK, Willemse said.
