Written by: Ben Lekgwathi and Ruwaida Lottering, Auditors
The 2026 National Budget announced an increase in South Africa’s VAT registration thresholds, effective 1 April 2026. From that date, the compulsory VAT registration threshold increases from R1 million to R2.3 million, and the voluntary VAT registration threshold increases from R50 000 to R120 000, subject to specific requirements and exceptions.
This change forms part of broader efforts to reduce compliance pressure on small and medium enterprises (SMEs). VAT compliance can be administratively demanding, as vendors must submit VAT201 returns according to SARS-allocated tax period categories, typically Category A or B (two-monthly), Category C (monthly), Category D (six-monthly) for qualifying vendors, or Category E (annual) in limited cases.
From a commercial perspective, the higher threshold may provide additional flexibility for smaller businesses that are no longer compelled to remain registered. In business-to-consumer markets, deregistration could allow a business to adjust VAT-inclusive pricing. However, this is not automatic: once deregistered, a business generally cannot claim input VAT, meaning VAT on costs becomes a real expense. Where customers are VAT-registered businesses, deregistration may reduce competitiveness because customers can no longer claim input VAT on the supplier’s invoices.
For businesses already registered for VAT, it may be possible to apply for cancellation of VAT registration if taxable supplies are expected to fall below the new compulsory threshold. Cancellation is made on written request (typically via SARS eFiling registration maintenance and supporting documents/forms as required), and the effective date of cancellation is determined by the Commissioner. SARS will generally not finalise a cancellation until outstanding VAT obligations are resolved; vendors should therefore continue to comply with VAT obligations until the effective cancellation date.
Importantly, deregistration can create a once-off VAT cost commonly referred to as “exit VAT”. When a person ceases to be a vendor, the VAT Act may deem certain enterprise assets and rights to have been supplied immediately before deregistration, potentially triggering output VAT even where no cash sale occurs. This potential liability should be quantified before applying to deregister and must be considered in the final VAT period calculations.
Businesses should therefore weigh the compliance relief against commercial and tax implications before deregistering, particularly the customer base, pricing model, input VAT profile, and any potential once-off VAT consequences on exit.
