VAT changes for South Africa

While the 2026 Budget may not have changed the VAT rate, it still made several adjustments to the system, including raising registration thresholds, refining digital services rules and tightening data-driven refund oversight.

Much of the early reaction to the 2026 Budget focused on the withdrawal of R20 billion in previously anticipated tax increases and welcome adjustments to personal income tax.

However, Tax Consulting SA’s Team Lead of Tax Legal, Micaela Paschini, pointed out that an equally significant shift has taken place within the VAT system.

“Rather than raising the VAT rate or increasing the tax burden, National Treasury has opted to refine the structure of VAT so that it aligns with the realities of a modern, digital, and evolving economy,” Paschini said.

Fiscal projections show that VAT will continue to be one of South Africa’s most stable revenue sources, with collections expected to reach R521.4 billion in 2026/2027.

This continued strength provides the South African Revenue Service (SARS) with the room to enhance administrative efficiency without resorting to tax increases.

“Steady domestic spending has anchored VAT performance, reinforced by more disciplined refund oversight. Import VAT has softened as nominal imports decline, but the system overall reflects consistency rather than fragility.”

“Businesses can take some comfort in this. The VAT rate remains unchanged, while a clearer and more consistent enforcement environment is taking shape.”

Paschini said that a highlight of Budget 2026 is the long-awaited upward adjustment to VAT registration thresholds. From 1 April 2026, the compulsory VAT registration threshold increases from R1 million to R2.3 million.

“This is the first adjustment since 2009 and acknowledges the impact of inflation and economic shifts on smaller businesses.”

“The voluntary registration threshold also rises, from R50,000 to R120,000. This modernises the VAT entry point for new and micro enterprises and gives startups more room to grow before taking on full VAT compliance responsibilities.”

Together, Paschini said these changes ease the compliance burden on small businesses and help SARS focus its administrative resources on vendors with higher turnover and more complex VAT profiles.

“It is a system improvement that benefits both revenue collection and business development,” Paschini added.

Electronic services and refunds

As expected, Paschini said that electronic services featured in this year’s VAT discussion. “The digital marketplace continues to expand, and the VAT rules need to keep pace.”

“Budget 2026 indicates that government intends to refine the way VAT is accounted for when foreign suppliers use intermediary platforms to reach South African consumers.”

Although the final legislative wording is still to come, Paschini explained that the direction is clear: when digital services move through platforms, there must be certainty regarding who is responsible for accounting for VAT.

“This evolution is not about placing new burdens on digital platforms. It is about keeping VAT rules aligned with modern business models and ensuring that suppliers and intermediaries understand their VAT responsibilities clearly.”

“Software as a Service (SaaS) providers, subscription platforms, marketplaces, and online learning platforms should take this opportunity to review their contracts and VAT processes.”

According to Paschini, revised VAT refund projections reflect the taxman’s increasingly systematic verification approach.

“The result is a refund process that is more disciplined and, over time, more predictable for compliant vendors.”

“Vendors eligible for refunds can expect more detailed supporting document requests, sophisticated data matching across SARS systems and slightly longer processing times in higher risk sectors.”

Paschini explained that these refinements are meant to protect both the fiscus and compliant businesses by ensuring that refunds are accurate and supported.

“Where transactions comply with the VAT law, vendors that maintain proper documentation, well-supported reconciliations and technically accurate invoicing are likely to experience smoother and more efficient refund cycles.”

What businesses should be doing

Following the VAT changes announced in the Budget, Paschini explained that there are several practical steps businesses can take.

First, Paschini advised that businesses near the new R2.3 million threshold should assess how the change affects their obligations from April 2026.

Businesses operating through digital platforms should also review their VAT position, contractual responsibilities, and operational readiness.

According to Paschini, businesses should also strengthen their documentation discipline. “Vendors eligible for refunds should ensure that invoices, reconciliations and supporting documents are accurate and complete.”

Those businesses with complex or multi-jurisdictional activities should proactively test their VAT approach.

Finally, Paschini recommended that vendors use stronger internal systems and data checks to match SARS’ analytics-driven approach.

“VAT is entering a more structured and modern phase, marked by greater consistency in administration and verification.”

“This creates a strategic opportunity for businesses to reassess their internal controls while the broader environment remains stable.”

Paschini stressed that a focused VAT assessment can significantly reduce exposure, strengthen technical compliance, and ensure readiness for the refinements introduced in the 2026 Budget.

“Proactive correction is invariably more efficient and less costly than responding under audit pressure. Now is the time to interrogate your VAT position and address weaknesses before SARS does it for you.”