The VAT increase businesses are begging for in South Africa
Lula has again called on Finance Minister Enoch Godongwana to increase the VAT threshold for businesses during the 2026 National Budget.
The small business funder has asked Godongwana to increase the compulsory VAT registration threshold from R1 million to R3 million to unlock liquidity within the SME sector.
Lula has previously noted that small and medium-sized enterprises (SMEs) account for roughly 40% of South Africa’s GDP.
The VAT registration threshold has been stagnant at R1 million for 16 years. R1 million in 2009 is worth around R2.2 million today, adjusted for inflation.
Garth Rossiter, Chief Risk Officer at Lula, said that the R1 million VAT threshold remains a “glass ceiling” that disincentivises small business expansion.
This comes despite a favourable economic climate, with growth estimated to increase, inflation stabilising and improved business confidence.
Rossiter said that the current threshold forces many small business owners to choose between growth and administrative survival.
“We are seeing a trend where businesses intentionally cap their productivity to stay under the R1 million mark,” said Rossiter.
“Whether it is a psychology practice choosing to consult four days a week instead of five, or a specialised dry-cleaning business turning away new contracts, the message is the same: the cost of VAT compliance often outweighs the benefit of marginal growth.”
Rossiter has thus called for the threshold to be increased to R3 million, which he said could instantly unlock the productivity of thousands of SMEs.
Lula argued that the long-term fiscal benefits of the move would far outweigh the immediate loss of VAT revenue.
It said the economy would eventually benefit from increased corporate tax revenue from higher profits and expanded employment, as businesses scale without the current complex monthly filing systems.
More than taxes are needed
Beyond tax reform, Rossiter confirmed that the 2026 Budget will need to signal a shift toward long-term infrastructure certainty.
For many SMEs, the “basics” remain some of the biggest hurdles, with services not being delivered.
“Government’s role is to create a conducive environment so that the private sector can do the job of creating employment,” said Rossiter.
After submitting a proposal in late 2025, Lula received feedback that the proposal would be considered in the 2026 Budget cycle.
Rossiter said that the Budget is the perfect time for the government to show that it is serious about clearing obstacles to economic activity.
“In an election year, the focus often shifts toward short-term spending or quick fixes. However, the SME sector needs a move away from constant firefighting toward a predictable, long-term plan,” said Rossiter.
“While some emergency measures, they aren’t a growth strategy. We need a longer-term plan for energy and water expansion that businesses can actually bank on.”
President Cyril Ramaphosa recently announced that R50 billion would be invested in digital infrastructure, including 55 data centres.
However, Lula noted that there is a contradiction: data centres require vast amounts of power. A digital economy thus needs energy to keep growing.
“To protect that R50 billion investment and prevent more load-shedding, we need a growing energy supply with clear milestones and real accountability,” Rossiter added.
“A business-friendly budget is the most sustainable way to build pro-government sentiment and investor confidence.”
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