2026 Budget summary VAT

The proposed increase in the VAT registration thresholds is expected to ease the administrative burden on small businesses and improve their cash flow.

26 Feb 2026 7 min read 2026 Special Edition Budget Speech Overview Article

At a glance

  • The 2026 Budget proposed that, with effect from 1 April 2026, the compulsory value-added tax (VAT) registration threshold will increase to R2,3 million while the voluntary registration threshold will increase from R50,000 to R120,000.
  • The proposed increase in the VAT registration thresholds is expected to ease the administrative burden on small businesses and improve their cash flow.
  • Accordingly, where a business does not exceed the increased compulsory registration threshold as at 1 April 2026, it may apply to deregister for VAT.

VAT registration threshold

In terms of section 23(1)(a) of the VAT Act, any person carrying on an “enterprise” is required to register for VAT at the end of a month in which the total value of taxable supplies made during the preceding 12 months exceeds R1 million.

It is proposed that, with effect from 1 April 2026, the compulsory VAT registration threshold will increase to R2,3 million while the voluntary registration threshold will increase from R50,000 to R120,000.

The proposed increase in the VAT registration thresholds is expected to ease the administrative burden on small businesses and improve their cash flow. Accordingly, where a business does not exceed the increased compulsory registration threshold as at 1 April 2026, it may apply to deregister for VAT in terms of section 24(1) of the VAT Act.

Removing distinction between eFilers and non-eFilers

Currently, vendors who submit their VAT 201 returns and payments to SARS via eFiling may do so on the last business day of the month in which filing is required. By contrast, vendors who file and pay manually must meet the earlier deadline of the 25th of that month. As most vendors now use eFiling, it is proposed that this distinction be removed. Under the proposed change, all VAT vendors will be required to submit their returns and make payment by the last business day of the relevant month.

Time period to deduct notional input tax

Currently, a vendor may claim a notional input tax deduction on the acquisition of second-hand goods acquired under a non-taxable supply from a South African resident, where those goods are acquired for purposes of making taxable supplies.

If the goods are subsequently exported by that vendor, the supply may qualify for zero-rating. However, zero-rating is not permitted where the supplier, or a connected person, has deducted notional input tax on the acquisition. In the case of an indirect export, the VAT Refund Administrator (VRA) may only refund the qualifying purchaser to the extent that the VAT charged exceeds any notional input tax deduction claimed.

Even where the seller has not yet claimed the notional deduction at the time of sale, the existence of a valid VAT 264 creates a presumption that it may be claimed later, with the result that the subsequent export sale may not be zero-rated.

The exclusion of the zero-rating and VRA refunds only applies once the notional input tax has actually been claimed by the vendor. On the basis that vendors have five years to claim the notional deduction, this creates a fiscal risk to SARS if it refunds the full VAT amount, including the notional input tax amount, on the basis that no deduction has yet been claimed, only for the supplier to claim it in a later period.

It is therefore proposed that section 16(3) of the VAT Act be amended to require that the notional input tax deduction be claimed no later than the tax period in which the supply of the second-hand goods takes place, subject to the five-year prescription rule i.e. The notional input tax deduction will be restricted to a tax period prior to export. A vendor will not be able to claim the notional input tax deduction in a tax period after the goods were exported.

It appears that the risk that the proposal seeks to address relates primarily to refunds made by the VRA for the exportation of second-hand goods in respect of which a notional deduction will be made. However, the Budget does not explicitly state that the proposed amendment will apply only to the exportation of second-hand goods. Furthermore, it is unclear whether the restriction will apply only to the acquisition of second-hand goods purchased for purposes of onward supply, or whether it will apply more broadly to all acquisitions of second-hand goods. Further clarity is therefore required to determine how the proposal will be implemented in practice.

Expanding documentary requirements for second-hand goods

To mitigate the risk of fraudulent notional input tax deductions, it is proposed that the documentary requirements under section 20(8) of the VAT Act to support notional input tax deductions in respect of the acquisition of second-hand goods be expanded to include those documents listed under section 21 of the Second-Hand Goods Act 6 of 2009 (Second-Hand Goods Act).

The requirements of section 21 of the Second-Hand Goods Act are, briefly, that a dealer must, inter alia:

  • Maintain a prescribed register recording every acquisition and disposal of second-hand goods.
  • Record key particulars, including:
    • Seller’s full details and identity number, and how identity was verified.
    • Description and identifying features of the goods.
    • Purchase price.
    • Dealer reference number.
    • Dealer representative’s name and signature.
    • Date and time of the transaction and subsequent disposal details.
  • Obtain and keep a copy of the seller’s identity document or passport.
  • Make entries contemporaneously with each transaction.
  • Retain the register and identity document copies for at least five years from the transaction date (and keep separate registers if required by registration conditions).

Additional information required on tax invoices on acquisition of second-hand goods subsequently supplied by vendors

The zero-rate on exports does not apply to second-hand goods where the supplier has claimed a notional input tax deduction. In such cases, the supplier must charge VAT equal to the notional input tax previously claimed, and for indirect exports, the VRA may only refund the purchaser to the extent that the VAT charged exceeds the notional input tax deduction.

It is proposed that section 20 of the VAT Act be amended to require that the supplier of second-hand goods must issue a tax invoice for a subsequent supply of such second-hand goods which must show both the purchase price paid by the vendor and the amount of notional input tax previously claimed.

It seems that the intention is that this requirement will only apply to the export of second-hand goods in respect of which a notional input tax deduction was claimed. This, however, creates a concern for vendors, who would now effectively be required to indirectly disclose their margins to their customers.

Services rendered to a customs-controlled area enterprise or special economic zone operator

It appears that there is some confusion as to whether services rendered to a customs-controlled area or special economic zone operator in a customs-controlled area may be zero-rated in terms of section 11(2)(k).

It is proposed that the VAT Act be amended to clarify that only services physically rendered in the customs-controlled area may be zero-rated.

Supply of gold to banks

Section 11(1)(f) of the VAT Act currently provides for the zero-rating of gold supplied to the South African Reserve Bank, the South African Mint Company (Pty) Ltd, and any bank registered under the Banks Act 94 of 1990. This applies to gold supplied in the form of bars, blank coins, ingots, buttons, wire, plate, granules or in solution, provided that it has not undergone any manufacturing process other than refining or the manufacturing necessary to achieve those specific forms.

As SARS is required to undertake lengthy audit procedures to verify the correct application of the zero-rating, it is proposed that this provision be repealed.

Accordingly, the supply of gold will, going forward, be subject to VAT at the standard rate.

Electronic services and intermediaries

Section 54(2B) of the VAT Act was amended in 2024 to require a written agreement between the intermediary and the principal supplier. In instances where a principal makes a supply of electronic services through an intermediary’s platform, the intention was that the intermediary would be liable to account for the VAT on those electronic services.

It appears that intermediaries have experienced practical difficulties in concluding written agreements with foreign electronic service suppliers. In addition, it poses a compliance risk for SARS to recover VAT from the principal.

It is therefore proposed that section 54(2B) be amended to provide that the intermediary must account for the VAT by default, unless there is an agreement to the contrary, in which case the principal will be responsible for accounting for the VAT.

Leasehold improvements

Section 18C of the VAT Act requires a lessor who is a vendor and acquires leasehold improvements for non-taxable purposes, such as residential use, to account for output tax on the open market value of the improvements effected to the land. The purpose of this adjustment is to place the lessor in the same position as if the lessor had undertaken and paid for the leasehold improvements personally.

At present, however, section 18C does not apply to a lessor who is not a registered vendor. As a result, a non-vendor lessor may benefit from leasehold improvements in circumstances where VAT has effectively not been borne by the lessor.

It is therefore proposed that the VAT Act be amended so that this treatment is no longer limited to vendor-lessors, and that a specific declaration mechanism be introduced to give effect to this adjustment.

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