Trends & Insights

South Africa Budget 2026: 5 actions all SMEs must take now

South Africa’s 2026 Budget scraps R20bn in tax hikes and raises the VAT threshold to R2.3m. Here are 5 steps to protect and grow your business profit

Mar 6, 202615 min read Share

Finance Minister Enoch Godongwana’s 2026 Budget, delivered on 25 February 2026, brings a rare dose of good news:

• tax increases scrapped,
• debt finally stabilising,
• and a R2.3 million VAT threshold that could change how your small business handles compliance.

After last year’s bruising three-attempt budget saga, this year’s speech struck a markedly different tone.

Revenue came in R21.3 billion higher than expected, giving the Minister room to withdraw R20 billion in proposed tax increases from the May 2025 Budget entirely.

Personal income tax brackets are being adjusted for inflation. And for the first time in 17 years, government debt will stabilise as a share of GDP.

The backdrop matters too. South Africa secured its first credit rating upgrade in 16 years and was removed from the Financial Action Task Force (FATF) grey list.

These are tangible signals that the fiscal strategy is working and they have practical implications for your borrowing costs and business confidence.

But challenges remain.

Growth is forecast at just 1.6% for 2026. Logistics bottlenecks persist. The foot-and-mouth disease outbreak is hurting agricultural exports.

And SARS continues to expand its enforcement capacity under Project AmaBillions.

Here’s what you need to know and, more importantly, what to do about it.

Here’s what we’ll cover:

Your 2026 tax outlook: what changed and what it means for cash flow

The headline is straightforward: the R20 billion in tax increases provisionally included in the May 2025 Budget have been withdrawn.

VAT stays at 15%. No new corporate or personal income tax hikes.

The Minister was direct about why: higher-than-expected collections from net VAT, corporate income tax and dividends tax gave government enough room to pull back without risking fiscal sustainability.

For 2025/26, gross tax revenue was revised up by R21.3 billion compared to the estimate in the 2025 Budget.

Personal income tax brackets and rebates will be adjusted fully in line with inflation.

This matters because last year’s budget froze those brackets, meaning inflation pushed employees into higher tax bands without any real increase in purchasing power.

The full inflation adjustment reverses that fiscal drag, putting a small amount of money back into your employees’ pockets and easing some of the wage-increase pressure you may face.

Two savings incentives are also worth noting.

The tax-free annual investment limit rises from R36,000 to R46,000 per year.

The retirement fund deduction limit increases from R350,000 to R430,000.

If you run a small business and use tax-free savings accounts or contribute to a retirement fund, these higher limits give you more room to shelter income from tax.

For business owners approaching retirement, the capital gains tax exemption on the sale of a small business increases from R1.8 million to R2.7 million.

The qualifying business value threshold also rises from R10 million to R15 million.

If you’re planning an exit in the next few years, this change could save you a meaningful amount in CGT.

What this means for your bottom line

• The R20 billion in proposed tax increases have been scrapped, giving your business breathing room.
• Personal income tax bracket adjustments will improve employee take-home pay without additional cost to you.
• Higher savings and retirement fund limits create new tax planning opportunities.
• The increased CGT small business exemption benefits owners planning an exit.

Actions to take now

• Review your financial forecasts and reallocate any headroom you budgeted for tax increases that didn’t materialise.
• Check whether the inflation-adjusted personal income tax tables affect your payroll calculations once SARS publishes the updated brackets.
• Discuss the higher retirement fund and tax-free savings limits with your tax practitioner.
• If you’re considering selling your business, factor the new R2.7 million CGT exemption into your planning.

The VAT registration threshold just jumped to R2.3 million

This is arguably the most significant change for small businesses in the entire budget.

The compulsory VAT registration threshold has increased from R1 million to R2.3 million in taxable supplies over any 12-month period.

The R1 million threshold had been in place for years without adjustment, and as inflation pushed up prices, more and more small businesses were dragged into the VAT system.

The jump to R2.3 million is substantial; it’s more than double the old figure.

If your taxable supplies sit between R1 million and R2.3 million, you’ll need to consider whether staying registered makes sense.

Deregistering can reduce the administrative burden of VAT returns, but it also means you can no longer claim input tax on business purchases.

For businesses that sell primarily to end consumers (who can’t claim input tax anyway), deregistration may simplify operations considerably.

For businesses selling to other VAT vendors, remaining voluntarily registered could still make sense.

The voluntary registration threshold also rises from R50,000 to R120,000.

Businesses below R2.3 million can still choose to register if the input tax benefits outweigh the compliance costs.

What this means for your bottom line

• Businesses with taxable supplies between R1 million and R2.3 million may no longer need to be VAT-registered.
• Deregistration can reduce VAT compliance costs but also removes the ability to claim input tax.
• The voluntary threshold increase to R120,000 gives smaller businesses a higher bar before they can opt in.
• No transitional provisions have been announced yet for currently registered businesses falling below the new threshold.

Actions to take now

• Calculate your actual taxable supplies for the past 12 months to see where you fall.
• If you’re between R1 million and R2.3 million, run the numbers on whether voluntary registration benefits your business.
• Speak to your accountant before deregistering, as leaving the VAT system can trigger change‑in‑use adjustments under Section 18 of the VAT Act.
• Watch for SARS guidance on transitional arrangements for businesses currently registered below R2.3 million.

Fuel levies and sin taxes: the increases you need to price in

While the big-ticket tax increases were withdrawn, fuel levies and excise duties are rising in line with inflation.

For any business that moves goods or relies on transport, these are direct cost increases.

The general fuel levy increases by 9 cents per litre for petrol and 8 cents for diesel.

The carbon fuel levy adds another 5 cents for petrol and 6 cents for diesel.

The Road Accident Fund levy goes up by 7 cents per litre.

Combined, that’s a total increase of 21 cents per litre for both petrol and diesel, effective 1 April 2026.

These increases may seem modest in isolation, but they compound across every delivery run, every sales call and every employee commute you subsidise.

Excise duties on tobacco and alcohol also rise in line with inflation.

• A 340ml can of beer or cider goes up by 8 cents.
• A 750ml bottle of wine increases by 15 cents.
• A bottle of spirits rises by R3.20. Cigarettes increase by 77 cents per 20-pack.

If you operate in hospitality or retail, factor these into your stock pricing.

Actions to take now

• Update your transport and delivery cost models with the new fuel levy figures effective 1 April 2026.
• If you haven’t reviewed delivery pricing since early 2025, this is the trigger.
• For hospitality and retail businesses, update your product pricing to reflect the excise duty changes before new stock arrives at the higher cost.
• Review employee travel allowance and reimbursement policies against the updated fuel costs.

SARS enforcement: tighter compliance is here to stay

The 2026 Budget didn’t announce dramatic new SARS funding the way the 2025 Budget did, but the enforcement infrastructure built over the past two years is now largely operational.

Project AmaBillions, launched to close the roughly R75 billion revenue gap left by the abandoned 2025 VAT increase, has expanded SARS’s capacity with nearly 2,000 additional staff.

More queries, verifications and audits are already filtering through to SMEs.

The Minister highlighted illicit trade as a major threat to revenue, noting the recent announcement by a major tobacco producer closing its local operations as evidence of its economic impact.

SARS is conducting joint operations with the Border Management Authority, SAPS and the defence force to target illicit trade in tobacco and other goods.

For compliant businesses, this is ultimately a positive development.

Tighter enforcement creates a more level playing field by reducing the competitive advantage enjoyed by businesses operating outside the system.

SARS previously identified 156,000 taxpayers who were not registered or had not filed despite substantial economic activity.

Practical implications for your business

• Expect continued rigorous tax enforcement and compliance checks throughout 2026.
• The mandatory income tax reference number requirement for EMP501 submissions is now enforced, not optional.
• Verification requests are increasing, particularly for SMEs with turnover mismatches between VAT201 and IT14 returns.
• Voluntary disclosure remains available if you have historical compliance gaps.

Actions to take now

• Schedule a tax health check if you haven’t done one recently.
• Ensure all registrations are current, all returns are filed and all outstanding amounts are settled or on arrangement.
• Verify every employee has a valid tax reference number before the annual reconciliation window opens.
• Review your record-keeping systems to ensure all tax documentation is readily available within the 21-business-day response window for verification requests.

Infrastructure and PPPs: where the R1 trillion spend creates opportunities

Over the medium term, public-sector infrastructure spending will exceed R1 trillion.

Of that, R577.4 billion will be spent by state-owned companies and public entities, R217.8 billion by provinces and R205.7 billion by municipalities.

Transport and logistics account for the largest share.

Several specific projects are worth watching. SANRAL plans annual maintenance of approximately 27,000 kilometres and the resurfacing of 2,000 kilometres of road.

PRASA is continuing its corridors recovery programme, targeting an increase in annual passenger trips from 77 million to between 250 and 450 million over the medium term.

In water, investments are directed at bulk water augmentation, infrastructure refurbishment and strategic projects supporting economic nodes and agriculture.

The Budget Facility for Infrastructure (BFI) has shifted from annual to quarterly submission windows and has already approved R21.9 billion for five major projects including Transnet’s coal and iron ore corridor projects.

The call for proposals for the 2026/27 cycle opened on budget day.

On public-private partnerships, 63 projects are at different stages of development.

The six border posts project and the Gautrain vendor procurement are the most advanced, with financial closure expected later this year.

New PPP regulations for municipalities will be published by 30 June 2026, creating additional opportunities for private sector participation.

Government also issued an infrastructure bond in 2025, raising R11.8 billion to support its contribution to BFI-approved projects.

This signals a growing commitment to positioning infrastructure as an investable asset class.

Direct opportunities for your business

• The BFI now operates quarterly submission windows rather than annual ones.
• 63 PPP projects are in development, with municipal PPP regulations expected by 30 June 2026.
• Supply chain opportunities extend well beyond construction and engineering firms.
• Improved transport, water and energy infrastructure should reduce operating costs across sectors over time.

How to position your business to benefit

• Map your products and services against announced projects in your province.
• If you work in construction, professional services, or logistics, ensure your CIDB registration, B-BBEE certificates and safety files are current.
• Consider forming consortiums with complementary businesses to bid on larger contracts.
• Monitor the BFI quarterly windows and PPP regulations for opportunities relevant to your sector.
• For smaller businesses, identify where you sit in the supply chains feeding major projects.

Economic outlook: what to expect and how to plan

Growth is projected at 1.6% for 2026, an improvement from 1.4% estimated for 2025.

Over the medium term, growth is expected to average 1.8% and reach 2% by 2028.

These are modest numbers.

The Minister acknowledged that persistent logistics bottlenecks, weak public infrastructure, and the foot-and-mouth disease outbreak continue to drag on economic activity.

The fiscal position is healthier than it has been in years.

The consolidated budget deficit has narrowed to 4.5% of GDP for 2025/26, improving from the 4.8% estimated in the 2025 Budget.

Gross debt stabilises at 78.9% of GDP in 2025/26 and is projected to fall to 76.5% by 2028/29. Debt-service costs are also declining.

For your business, the improving fiscal picture has tangible benefits.

The credit rating upgrade reduces South Africa’s country risk premium, which feeds through to lower borrowing costs.

If you have variable-rate debt, you’ve already been benefiting from the Reserve Bank’s rate cuts (the repo rate stood at 6.75% as of November 2025 with the new 3% inflation target suggesting more cuts ahead).

Stabilising debt means government is crowding out less private-sector borrowing, which should keep credit available.

The risks are real, though.

The foot-and-mouth outbreak has prompted temporary export bans affecting agricultural businesses and their suppliers.

Logistics constraints at ports and on rail lines continue to add cost and unpredictability.

And the global trade environment remains volatile, with US tariffs and the uncertain status of AGOA adding complexity for exporters.

What the economic outlook means for your business

• Lower borrowing costs and stabilising debt create a more favourable financing environment
• The credit rating upgrade is a tangible signal that feeds through to your cost of capital
• Logistics bottlenecks and the foot-and-mouth outbreak remain real constraints on growth
• Global trade volatility, particularly US tariffs and AGOA uncertainty, adds risk for exporters

Actions to take now

• Build your 2026/27 forecasts around the 1.6% growth baseline rather than optimistic scenarios
• If you’ve been delaying capital investment because of financing costs, the current rate environment is more favourable than anything South Africa has seen in years
• Assess your exposure to logistics constraints and, where possible, build buffer stock or alternative transport arrangements into your planning
• For exporters, diversify your market exposure and investigate African Continental Free Trade Area opportunities

Employment and payroll: updates your team needs

The budget includes several measures affecting how you manage pay, payroll compliance, and employee costs.

The full inflation adjustment to personal income tax brackets means employees will see slightly more take-home pay compared to a scenario where brackets stayed frozen.

This is the first adjustment in three years, following freezes in 2024/25 and 2025/26.

The adjustment provides R13.7 billion in taxpayer relief across the economy and helps offset the wage-increase pressure many employers face.

The R12 billion in savings identified through the Targeted and Responsible Savings (TARS) initiative includes some workforce-related shifts.

The skills development levy system is being reformed.

The Minister noted that SETAs and the National Skills Fund have not delivered expected outcomes, and government will explore a dual-training skills acquisition system.

If you currently interact with SETAs for training grants or learnership claims, watch for changes to how these programmes are structured.

Social grants are increasing from April 2026.

The old age grant, disability grant, and care dependency grant rise by R80 to R2,400.

The child support grant increases by R20 to R580.

The social relief of distress grant continues in its current form for another year, extended to March 2027.

These increases may reduce financial pressure on some of your lower-paid employees, though the amounts remain modest.

The national minimum wage increases to R30.23 per hour from 1 March 2026, up from R28.79. This applies across all sectors.

If you claim the Employment Tax Incentive, ensure minimum wage compliance as part of your ETI control environment.

Where an employee is paid below the required rate, no ETI may be claimed for that employee.

How your business should respond:

• Once SARS publishes the updated 2026/27 tax tables, update your payroll system promptly.
• Review your skills development strategy in light of the announced SETA reforms; if you’re planning learnership registrations, do so under the current framework while it’s still in place.
• Ensure all employees are paid at least R30.23 per hour from 1 March 2026.
• If you claim the Employment Tax Incentive, remember the enhanced rates (up to R1,500 per month in the first 12 qualifying months for employees aged 18 to 29 earning up to R7,500) require strict minimum wage compliance.
• Audit your payroll for minimum wage compliance before an inspector does; the Department of Employment and Labour has expanded its inspection capacity significantly.

Action plan: 5 steps to budget-proof your business in 2026

Based on Minister Godongwana’s Budget Speech, here are 5 key actions to position your business for success in the coming year:

1. Update your financial strategy for the withdrawn tax increases and new thresholds

The R20 billion in tax increases that were provisionally included in the May 2025 Budget have been scrapped.

If you budgeted conservatively for those increases, you now have headroom to reallocate.

More immediately, check whether the new R2.3 million VAT registration threshold affects your compliance obligations.

Prepare your payroll for the updated income tax tables once published, and adjust your retirement fund contributions and tax-free savings to take advantage of the higher limits.

2. Price in the indirect tax increases that did go through

Fuel levies are rising by a combined 21 cents per litre. Excise duties on tobacco and alcohol are increasing in line with inflation.

These increases are modest individually but affect transport costs, stock pricing, and employee travel claims.

Update your cost models now rather than absorbing the increases until they start compressing margins.

3. Strengthen your tax compliance before SARS comes knocking

Project AmaBillions is operational and expanding.

The mandatory income tax reference number requirement for EMP501 submissions is enforced, not optional.

Run a compliance health check: all registrations current, all returns filed, all employees’ tax reference numbers on record.

If there are historical gaps, consider a voluntary disclosure before SARS identifies them first.

4. Identify opportunities in the R1 trillion infrastructure pipeline

Map your products and services against announced projects in your province.

The BFI now operates quarterly submission windows, and 63 PPP projects are in development.

Even if you’re not bidding directly, identify where you sit in the supply chains feeding major projects.

Ensure your CIDB, B-BBEE, and safety compliance documents are current and ready to submit.

5. Revisit your growth plans in a lower-rate, stabilising-debt environment

With debt stabilising, a credit rating upgrade secured, and the repo rate at multi-year lows with further cuts expected, financing conditions are more favourable than they’ve been in years.

If you shelved expansion plans, equipment purchases, or property acquisition because of high rates, revisit those decisions.

The combination of lower borrowing costs and relatively stable inflation creates a window that may not stay open indefinitely.

Final thoughts

The 2026 Budget is the most SME-friendly in recent memory:

• tax increases withdrawn,
• a VAT threshold that finally reflects the reality of running a small business,
• debt stabilising for the first time in 17 years,
• and infrastructure spending creating opportunities across sectors.

Granted, the challenges haven’t disappeared. Growth remains sluggish, logistics bottlenecks persist, and SARS enforcement will only intensify.

But the direction of travel is clear, and the businesses that position themselves now to take advantage of the improving fiscal environment will be the ones that benefit most.

Start with the five steps above.

Talk to your accountant about the new thresholds and limits.

And keep an eye on the infrastructure pipeline and PPP regulations as they develop through the year.