Tax Reforms Offering Needed Relief For Small Businesses in South Africa

By Kekeletso Nkele, small.news Assistant

(small.news) — South Africa’s 2026 national budget delivers targeted tax relief for small businesses, as stronger-than-expected revenue collection allows the government to ease pressure on SMEs without introducing new broad-based tax increases, according to IOL.

Presenting the budget speech, Enoch Godongwana said the improved fiscal position has created room to support small business owners navigating rising costs and tight cash-flow conditions across South Africa.

Stronger Revenue Performance Opens Doors To SME Relief

Despite slow economic growth, South Africa’s tax system has performed better than expected over the past three years—a shift that directly benefits small businesses.

For the 2025/26 fiscal year, gross tax revenue has been revised upward by R21.3 billion compared to the 2025 Budget estimates. Higher-than-expected net VAT, corporate income tax, and dividends tax collections have strengthened the in-year outlook.

This improvement has allowed the government to withdraw the R20 billion in tax increases provisionally included in the May 2025 Budget, easing the risk of additional tax burdens on small businesses, reports TimesLive.

No New Tax Hikes For Growing Businesses

According to Godongwana, the decision to withdraw the proposed tax increases does not compromise fiscal sustainability or economic activity.

For small business owners, this signals short-term certainty at a time when many enterprises are still adjusting to higher input costs, energy constraints, and subdued consumer demand.

VAT Threshold Moves With Business Costs

One of the most impactful announcements for SMEs was the increase in the compulsory VAT registration threshold.

The change follows public submissions to the National Treasury’s annual “Tips for the Budget” initiative, which received more than 1,200 responses in 2026.

Renette Oosthuizen, a small business owner from Gauteng, raised the issue directly. “Minister Godongwana, please increase the VAT registration threshold for small businesses to R2 million. The R1 million threshold has not kept pace with the cost of doing business,” she said

Godongwana confirmed that the threshold will increase from R1 million to R2.3 million — a move expected to reduce compliance costs and ease cash-flow pressure for growing small enterprises

Easier Exits For Long-Term Small Business Owners

Additional relief was announced for older small business owners planning to sell or exit their businesses.

The capital gains tax exemption on the sale of a small business will increase from R1.8 million to R2.7 million and will now apply to businesses valued at up to R15 million, up from the previous R10 million cap.

This adjustment allows business owners to retain more of the value created over years of operation, supporting smoother exits, succession planning, and retirement outcomes.

Supporting SMBs Beyond Day-to-Day Operations

While broader in scope, proposed increases to tax-free investment limits and retirement fund deductions also benefit entrepreneurs, many of whom rely on their businesses as their primary wealth-building vehicles.

By enabling higher levels of tax-efficient saving, the budget supports long-term financial security for small business owners beyond their operational years.

However, despite the positive changes, Godongwana cautioned that certain tax increases remain unavoidable in the current economic environment. He emphasised the need to maintain fiscal discipline while continuing to prioritize support for small businesses, widely recognised as central to employment and economic resilience in South Africa.