VAT relief for South Africans comes with a catch

Budget 2026 is expected to offer relief by keeping VAT at 15%, but the South African Revenue Service (SARS) will tighten enforcement, digital monitoring, and audits, especially for small businesses.

This is according to Tax Consulting SA’s Team Lead of Tax Legal, Micaela Paschini, and Tax Attorney, Megan Langton.

They explained that the 2026 Budget is shaped by the need to drive revenue, and VAT remains a dependable lever to achieve it.

“With limited economic growth and a stretched tax base, VAT’s stability draws administrative attention over politically costly rate adjustments,” Paschini and Langton said.

“This year, the emphasis shifts away from dramatic policy moves toward targeted, enforcement‑led refinements.”

The Treasury’s flirtation with a VAT rate hike in 2025 met political and economic resistance, Paschini and Langton said. As a result, the staggered plan was signalled, contested, and ultimately reversed before implementation.

“SARS even issued operational guidance acknowledging the reversal and court‑order implications. The practical effect was that the standard rate stayed at 15%,” they said.

“Heading into Budget 2026, consensus expectations point to no rate change, with focus shifting to enforcement, modernisation, and base protection. In short: additional revenue without rate hikes.”

Paschini and Langton explained that the taxman’s audit posture has evolved. Now, it is defined by fewer arithmetic checks and more interpretation.

“Expect probes into complex/multi‑element supplies, intra‑group restructures, cross‑border models, and capital projects, where a single mischaracterisation can swing outcomes,” they said.

“This aligns with an agency‑wide push to make non‑compliance hard and costly, and to augment specialist capacity for complex matters.”

Another major change includes Project AmaBillions, SARS’ multi‑year collections drive, backed by a significant headcount ramp‑up and AI‑enabled risk selection.

These shifts make it clear that vendors with complex positions should plan for targeted queries and additional assessments, they warned.

Refunds

Paschini and Langton explained that in a revenue‑sensitive climate, refunds – which are cash outflows – face friction by design.

The Tax Ombud has highlighted that SARS is utilising material repayments after complaints, even as practitioners report silent verifications, blocked uploads.

SARS is also making “burden of proof not discharged” findings, an administrative pattern that keeps money in the system until documentation and commercial substance are beyond doubt.

“SARS’ modernisation path is explicit: real‑time/near‑real‑time VAT reporting and e‑invoicing, moving from declaration‑based to transaction‑level oversight,” Paschini and Langton said.

“Once VAT data streams directly from your systems, ‘fix it later’ stops being a strategy. Prepare for audit selection by anomaly, cross‑verification, and pattern recognition. Not just by refund size.”

They pointed out that independent analyses also make the same point clear: taxpayers must prepare for real‑time VAT, tighter data governance, and more frequent audits as the VAT Modernisation Project beds down.

“While the Budget Speech addresses headline measures, Annexure C in the Budget Review document reveals how VAT evolves quietly in the background,” they added.

Treasury’s annual invitation for technical submissions is not a mechanism for policy overhauls but a targeted process to close loopholes, correct anomalies, and strengthen legislative integrity.

Across the technical submissions on VAT, stakeholders have raised issues that point to areas where clarity and refinement could improve compliance and administration.

Pain for small businesses

For small businesses, Paschini and Langton pointed out that the compulsory R1 million VAT registration threshold has not been adjusted since 2009.

After 17 years of inflation and economic changes, many small businesses are pulled into the VAT net long before reaching a sustainable scale.

“Industry submissions emphasise the disproportionate administrative pressure, cash‑flow strain, and competitive disadvantage created by this threshold,” they said.

“A more realistic threshold, around R2.2 million to R2.5 million, reflects inflationary adjustment and Small and Medium Enterprise (SME) economic realities.”

By not adjusting the threshold, Paschini and Langton warned that the VAT system quietly expands from below.

“More SMEs must register, collect VAT, maintain audit‑ready records, and interact with SARS’ increasingly data‑driven systems,” they said.

“This increases visibility, compliance touchpoints, and ultimately revenue, without any change to the statutory rate.”

Paschini and Langton added that SMEs often struggle with uneven cash flow, late customer payments, and limited ability to absorb VAT timing mismatches.

In this environment, broader access to the VAT payments basis is frequently raised in broader technical discussions as a practical way to better align VAT obligations with liquidity pressures.

Practically, this would look like an environment where VAT becomes payable upon receipt rather than at invoice issue.

“The concept does not reduce the VAT base or alter declared revenue. It simply adjusts the timing of when VAT becomes due, offering administrative relief for smaller vendors facing cash‑flow constraints,” Paschini and Langdon said.

“While not framed as a revenue measure, the limited scope of the payment-based, paired with a frozen threshold, reinforces SARS’ effective control over SME VAT flows.”

Tighter enforcement

Paschini and Langton said industry bodies continue to highlight ambiguity in zero‑rating rules, supply characterisation, refund processes, and administrative interactions that create unnecessary verification cycles.

“Proposals around these issues aim to reduce friction for compliant taxpayers while reinforcing the integrity of VAT legislation,” they said.

“Annexure C is where the ‘quiet tightening’ occurs – administrative certainty increases, loopholes shrink, and the VAT base is protected, without a single change to the VAT rate.”

They said the public narrative for the 2026 Budget will likely reflect a restrained fiscal environment, with the emphasis expected to fall squarely on reinforcing revenue rather than announcing sweeping tax reforms.

When it comes to the country’s VAT landscape, Paschini and Langton explained that taxpayers should watch out for:

• Stricter interpretation‑based VAT audits
• Tougher refund verification and substantiation demands
• Real‑time VAT oversight through digital reporting and e‑invoicing
• Technical amendments via Annexure C that reinforce the VAT base
• Growing pressure on SMEs as threshold misalignment and cash‑flow timing distortions persist

“The percentage may remain unchanged. The discipline around it will not,” Paschini and Langton cautioned.

“In a fiscally constrained state, the most dependable tax becomes the most protected, and in 2026, VAT will likely be protected through enforcement intensity, digital transformation, and structural refinement rather than rate hikes.”