Position stated as at 27 August 2026.
SARS is administering a compulsory VAT registration threshold of R2.3 million and a voluntary registration threshold of R120 000 from 1 April 2026. The enacted Value-Added Tax Act 89 of 1991 has not yet been amended to reflect those amounts. Section 23(1)(a) still contains the R1 million compulsory threshold and section 23(3)(b) still contains the R50 000 voluntary threshold.
That distinction matters. SARS's Budget 2026 guidance expressly says that the threshold amendments have not yet been promulgated, but that SARS is administering registrations and deregistrations on the announced thresholds from 1 April 2026. The 2026 Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill proposes the required amendments to section 23 and provides that they are to be deemed effective from 1 April 2026 if enacted in that form.
The practical result is unusual: SARS's current administration has moved ahead of the enacted wording. Businesses can act on SARS's published process, but they should do so with a clear record of the legislative position and should confirm the final enacted wording and commencement date before making a material change to their VAT structure.
The current legal position
The Rates and Monetary Amounts and Amendment of Revenue Laws Act 3 of 2026, promulgated on 1 April 2026, did not amend section 23 of the VAT Act. The proposed R2.3 million and R120 000 VAT thresholds are contained in the 2026 Draft Rates Bill, not in Act 3 of 2026.
This does not mean that SARS is ignoring the Budget announcement. SARS has expressly stated that it is administering new VAT registrations on the R2.3 million threshold and that vendors below that amount may apply for cancellation. It also states that, once the legislation is promulgated, it will notify vendors falling below the new R120 000 voluntary threshold of an intention to cancel their registrations.
The safest way to describe the position is therefore to distinguish three things: the enacted VAT Act still contains the old thresholds; the Draft Rates Bill proposes the new thresholds with deemed effect from 1 April 2026; and SARS is already administering the new thresholds pending promulgation. A Budget announcement or SARS webpage does not itself amend an Act of Parliament.
The VAT threshold is not simply an annual turnover test
The starting point remains section 23 of the VAT Act. The compulsory registration test concerns the value of taxable supplies made in carrying on an enterprise, not simply the turnover figure appearing in annual financial statements.
Section 23(1)(a) contains the historical test: at the end of a month, liability can arise where taxable supplies made during the 12 months ending at the end of that month exceed the applicable compulsory threshold. Section 23(1)(b) contains a separate prospective test where, in terms of a written contractual obligation, the value of taxable supplies to be made during a 12-month period will exceed the threshold. A business close to the threshold should therefore monitor its position on a rolling basis and should also consider binding contracts for future supplies.
Standard-rated and zero-rated supplies generally form part of taxable supplies for this purpose. Exempt supplies are different and are not included merely because they form part of accounting turnover.
The proviso to section 23(1) also matters. In broad terms, the threshold is not treated as exceeded where the Commissioner is satisfied that the excess arises solely from the cessation of an enterprise, a substantial and permanent reduction in its size or scale, the replacement of plant or other capital assets, or abnormal circumstances of a temporary nature. A once-off disposal of a capital asset or an identifiable temporary abnormal event should therefore be tested against the proviso. An unusually strong trading year, by itself, is not enough.
Falling below R2.3 million does not automatically cancel a VAT registration
Under SARS's current administration, a vendor whose taxable supplies fall below R2.3 million may apply for cancellation if the applicable deregistration requirements are met. That is SARS's present administrative position pending enactment of the new threshold; it should not be confused with an amendment already appearing in section 23.
A vendor with taxable supplies between R120 000 and R2.3 million is not being automatically removed from the VAT system. SARS states that such a vendor may choose to apply for cancellation. Remaining registered can therefore still be an option, subject to the ordinary VAT requirements.
The position below R120 000 is different. SARS states that, once the legislation is promulgated, it will notify vendors falling below the new voluntary threshold of its intention to cancel their registrations. Its Budget 2026 FAQ further states that a vendor who disagrees with such a notification may object on an ADR1 within 80 business days.
Most importantly, a vendor must not simply stop charging VAT because it believes it falls below the new threshold. Cancellation is dealt with under section 24. Until SARS confirms the cancellation, its effective date and the final tax period, the vendor must continue to charge and account for VAT and may continue to deduct qualifying input tax in the ordinary course.
Deregistration can itself create a VAT liability
This is often the most important calculation before a business leaves the VAT system. Section 8(2) contains a deemed-supply rule that applies when a person ceases to be a vendor. In practical terms, VAT can become payable on certain goods and rights retained by the business when its registration is cancelled.
This can include trading stock and enterprise assets on which input tax was deducted. Fixed property can be particularly important. If a business previously deducted input tax on premises that it retains when it deregisters, the exit VAT exposure may be large enough to change the commercial answer entirely.
The value of the deemed supply is determined under section 10(5) and, broadly, is based on the lower of cost or open market value of the relevant goods or rights. SARS commonly refers to the resulting liability as exit VAT.
Other final-period adjustments may also arise. Section 22 can require an adjustment where input tax was deducted but the relevant consideration remains unpaid. The business must also ensure that all output tax and qualifying input tax up to the last day of the final tax period are correctly reflected. SARS's current guidance requires the deemed exit supply to be disclosed in fields 1A and 4A of the final VAT201 return.
The deemed supply produces no cash. The business may have to fund VAT on assets it is keeping. Deregistration should therefore be modelled before the application is submitted, not after SARS has cancelled the registration.
Remaining VAT registered may still make commercial sense
VAT registration is not necessarily a disadvantage. The correct answer depends on the customer base, the business's input costs, its pricing model and whether taxable supplies are likely to move above R2.3 million again.
A business that sells mainly to VAT vendors may have less commercial reason to deregister because its customers can generally deduct qualifying input VAT, subject to the ordinary requirements of the VAT Act. The business itself can also continue deducting qualifying input VAT on its expenditure.
The position can be different where customers cannot recover VAT. In that market, leaving the VAT system may provide more pricing flexibility. But the comparison is not between 15 per cent VAT and no cost at all. A business that deregisters also gives up the input VAT it was recovering on qualifying stock, rent, equipment and overheads.
There is also little benefit in incurring exit VAT and changing systems if the business is likely to exceed the compulsory threshold again shortly afterwards.
A further option is sometimes overlooked. A registered micro business that is voluntarily registered for VAT may, on written application to SARS, use the twice-yearly VAT payment concession contemplated in section 27(4)(b). Where the concern is mainly administrative burden rather than the tax itself, this may be worth considering before deregistration.
Turnover Tax is a separate enquiry
The VAT thresholds and Turnover Tax should not be treated as two sides of the same election. They are separate regimes with separate qualification rules.
The 2026 Draft Rates Bill proposes increasing the Turnover Tax qualifying-turnover limit from R1 million to R2.3 million. The proposed commencement wording is not identical for every taxpayer: for natural persons the amendment is proposed to apply to years of assessment commencing on or after 1 March 2026, while for companies it is proposed to apply to years of assessment ending on or after 1 April 2026. SARS's public guidance broadly describes the increased Turnover Tax threshold as applying from 1 April 2026.
The enacted commencement wording should therefore be checked before relying on the increased limit in a particular case.
The Draft Rates Bill also proposes a 0 per cent Turnover Tax band up to R600 000. Until that Bill is enacted, Act 3 of 2026 remains the promulgated rate legislation and its Turnover Tax table has a 0 per cent band only up to R335 000. SARS is already displaying and administering the proposed 2026/27 rates, but that administrative position should again be distinguished from the legislation currently on the statute book.
A turnover figure below R2.3 million is only the starting point. The Sixth Schedule to the Income Tax Act contains separate qualification and exclusion rules. For a natural person, the professional-services limitation is triggered where more than 20 per cent of total receipts consists of income from rendering a professional service. For a company, the 20 per cent test combines investment income and income from rendering a professional service.
Other exclusions include, subject to the detailed wording of the Sixth Schedule, limits relating to disposals of immovable property and other assets used mainly for business purposes, ownership restrictions, personal service providers and labour brokers, and the current requirement that a company's year of assessment end on the last day of February. The statutory definition of 'professional service' is broad and includes, among others, consulting, education, engineering, health, information technology, law and management.
The 30 July 2026 Draft Taxation Laws Amendment Bill proposes deleting the February year-end restriction with effect from 1 January 2027. Until that amendment is enacted and operative, the current Sixth Schedule requirement remains relevant.
A qualifying micro business can also be registered for VAT. Turnover Tax registration therefore does not, by itself, require VAT deregistration.
Turnover Tax is not a regime to enter casually
Two features of the Sixth Schedule deserve particular attention before a business elects into Turnover Tax.
First, paragraph 8(3) provides that a person deregistered as a micro business may not register as a micro business again. A business should therefore not approach Turnover Tax as a temporary trial that can simply be reversed later.
Second, timing matters. Under the current paragraph 8(1), an existing business generally elects before the beginning of a year of assessment, or by a later date prescribed by the Commissioner in a Government Gazette. A business that commences activities during a year has a separate two-month election window. A business considering Turnover Tax during 2026 should therefore confirm that it is still within a valid election window rather than assuming that registration can take effect immediately.
Clause 21 of the 30 July 2026 Draft Taxation Laws Amendment Bill proposes changing this rule so that the election may be made before the end of a year of assessment and proposes deleting the separate two-month rule for newly commenced businesses. The clause is proposed to come into operation on 1 January 2027. As it remains draft legislation, a business should not rely on that proposed flexibility until the final enacted and transitional wording is known.
Simpler does not necessarily mean cheaper
Turnover Tax is designed to simplify the tax affairs of qualifying micro businesses. Simplicity does not necessarily mean that it produces the lowest tax cost.
Under the ordinary income tax system, the tax result is generally determined by reference to taxable income after applying the relevant income and deduction provisions. Turnover Tax applies prescribed rates to taxable turnover. That difference can produce very different outcomes for businesses with the same turnover but different margins and cost structures.
A business with high margins and relatively low expenses may reach a different conclusion from a business with substantial operating costs and a much smaller profit. The correct comparison is therefore a numerical one: first establish whether the business qualifies, then compare Turnover Tax with the ordinary income tax position using the business's actual numbers.
What should businesses do now?
Businesses with taxable supplies between R1 million and the R2.3 million threshold currently being administered by SARS have a genuine opportunity to review their VAT position. They should not, however, treat the Budget announcement as an automatic deregistration.
The first step is to determine whether the business is compulsorily liable for VAT under the relevant historical and contractual tests. If SARS's current R2.3 million administration places the business below the compulsory threshold, it can then consider whether a cancellation application is available and commercially sensible.
Before applying, the business should calculate potential exit VAT and other final-period adjustments, quantify the input VAT it will give up, consider the VAT status of its customers and assess whether growth is likely to push taxable supplies above the threshold again.
Turnover Tax should be considered separately. The business should test the Sixth Schedule requirements, the current election rules and the legislative status of the proposed R2.3 million threshold and new rate table, and then compare the actual tax cost with the ordinary income tax system.
The legislative position must be checked again immediately before any material change is implemented. In particular, the final version and commencement provisions of the 2026 Rates legislation and the 2026 Taxation Laws Amendment legislation will determine whether the draft positions described above become law in the form currently proposed.
Decide before submitting the application
For some businesses, VAT deregistration may reduce administration or improve pricing flexibility. For others, exit VAT, loss of input tax deductions, customer preferences or expected growth may make remaining registered the better option.
Turnover Tax may offer a simpler regime for a qualifying micro business, but qualification alone does not establish that it is financially preferable.
The legal position and the numbers should therefore be tested before the business changes its tax structure. Where the answer is not obvious, an advisory memorandum can address the VAT registration position, the consequences of deregistration, potential exit VAT, Turnover Tax eligibility and the comparative tax outcomes before the business commits to a course of action.
Intellectual property disclaimer: The contents of any article published by Pieterse Sellner Erasmus should not be construed as professional legal advice.
Intellectual property disclaimer:
The contents of any article published by TRM Tax Attorneys should not be construed as professional legal advice.
