The National Treasury announced in the 2026 Budget Review that the compulsory VAT registration thresholds will increase from R1 million to R2,3 million. The voluntary registration threshold also increases from R50 000 to R120 000. These changes in the draft Rates and Monetary Amounts Bill take effect from 1 April 2026, subject to parliamentary approval. Some vendors whose taxable supplies fall between these amounts may be considering voluntary deregistration.
Effect of changes in the thresholds
SARS published a frequently asked questions document on the 2026 Budget that clarifies the position of vendors who may be affected by the changes. Vendors whose taxable supplies are below the revised voluntary registration threshold of R120 000 should expect a notice of intention to cancel their registration from SARS. There is no automatic process for vendors whose 12-month taxable supplies are between R120 000 and R2,3 million. The decision whether to remain registered or to apply for deregistration rests with the vendor. The question for these vendors is whether deregistration makes commercial and administrative sense. The decision requires careful evaluation of both immediate and longer-term implications for the business.
Long-term business considerations
VAT registration brings administrative obligations that some smaller vendors may prefer to avoid. These include bi-monthly returns, record-keeping requirements, and compliance with VAT invoicing rules.
VAT registration directly impacts pricing and, in some cases, customer relationships. In a business-to-business context, VAT has a minimal impact on pricing because the customer, a registered vendor itself, can claim input tax. In a business-to-consumer context, the vendor either prices 15% above unregistered competitors or absorbs the VAT. In this case, being a vendor or not makes a real difference in terms of competitiveness. However, small businesses that are capital-intensive businesses or plan significant capital expenditure may well benefit from remaining VAT vendors. The ability to claim input tax on, for example, immovable property acquired could offset pricing pressure on the output side.
Short and medium term VAT implications
If a vendor decides to deregister, this decision has an immediate short-term implication. Section 8(2) of the VAT Act deems such a vendor to have supplied goods and rights that form part of its enterprise. This means that the decision to deregister may well result in output tax. The supply is deemed to be at the lower of the cost or the open market value of the goods or rights. This adjustment essentially places the person back in the position for that asset as if it was not vendor. Importantly, this output tax triggers a cash outflow without a corresponding cash inflow seeing that it results from a deemed supply, rather than an actual one.
Vendors who are considering deregistration should also evaluate their growth prospects, especially in light of the above output tax. If they expect their 12-month turnover to exceed R2,3 million in the foreseeable future, requiring re-registration, this may impact the assessment. It could be challenging for these to re-claim input tax on assets they hold at that time when they re-register .
In conclusion
The VAT threshold increase may provide deregistration opportunities for some vendors in the R1 million to R2,3 million bracket. However, this decision is more complex than simply comparing turnover to the new threshold. It requires weighing up administrative relief and possible price competitiveness against loss of input tax benefits and the immediate output tax resulting from deregistration. Each vendor's own circumstances will determine whether deregistration really represents a practical advantage.
You can listen to me discussing this topic in Episode 74 of my podcast, Tax Break, at the link below:
