The 2025 Lesson. The 2026 Reality.
Last year’s flirtation with a VAT rate hike met political and economic resistance; the staggered plan was signalled, contested, and ultimately reversed before implementation. The South African Revenue Service (SARS) even issued operational guidance acknowledging the reversal and court‑order implications. The practical effect was that the standard rate stayed at 15%.
Heading into Budget 2026, consensus expectations point to no rate change, with focus shifting to enforcement, modernisation, and base protection. In short: additional revenue without rate hikes.
Deeper Legal Scrutiny in VAT Audits
SARS’ audit posture has evolved: fewer arithmetic checks, more interpretation. Expect probes into complex/multi‑element supplies, intra‑group restructures, cross‑border models, and capital projects, where a single mischaracterisation can swing outcomes. This aligns with an agency‑wide push to make non‑compliance hard and costly, and to augment specialist capacity for complex matters.
Add to that Project AmaBillions, SARS’ multi‑year collections drive, backed by significant headcount ramp‑up and AI‑enabled risk selection, and it is clear that vendors with complex positions should plan for targeted queries and additional assessments.
Refund Governance & Substantiation
Refunds are cash outflows; in a revenue‑sensitive climate they face friction by design. The Tax Ombud has highlighted material repayments after complaints, even as practitioners report silent verifications, blocked uploads, and “burden of proof not discharged” findings, an administrative pattern that keeps money in the system until documentation and commercial substance are beyond doubt.
Data‑Driven Enforcement & Documentation Integrity
SARS’ modernisation path is explicit: real‑time/near‑real‑time VAT reporting and e‑invoicing, moving from declaration‑based to transaction‑level oversight. Once VAT data streams directly from your systems, “fix it later” stops being a strategy. Prepare for audit selection by anomaly, cross‑verification, and pattern recognition. Not just by refund size.
Independent analyses echo the same direction: get ready for real‑time VAT, tighter data governance, and more frequent audits as the VAT Modernisation Project beds down.
Annexure C: Quiet Adjustments That Strengthen the VAT System
While the Budget Speech addresses headline measures, Annexure C in the Budget Review document reveals how VAT evolves quietly in the background. Treasury’s annual invitation for technical submissions is not a policy overhaul mechanism but a targeted process to close loopholes, correct anomalies, and strengthen legislative integrity.
Across the technical submissions relating to VAT, stakeholders have raised matters that point to areas where clarity and refinement could support both compliance and administration.
SME VAT Burdens & Threshold Misalignment
The compulsory R1 million VAT registration threshold has not been adjusted since 2009. After 17 years of inflation and economical changes, many small businesses are pulled into the VAT net long before reaching sustainable scale. Industry submissions emphasise the disproportionate administrative pressure, cash‑flow strain, and competitive disadvantage created by this threshold. A more realistic threshold, around R2.2–R2.5 million, reflects inflationary adjustment and SME economic realities.
By not adjusting the threshold, the VAT system quietly expands from below. More SMEs must register, collect VAT, maintain audit‑ready records, and interact with SARS’ increasingly data‑driven systems. This increases visibility, compliance touchpoints, and ultimately revenue, without any change to the statutory rate.
Payment‑basis VAT to Ease Cash‑Flow Stress
SMEs often struggle with uneven cash flow, late customer payments, and limited ability to absorb VAT timing mismatches. In this environment, broader access to the VAT payments basis, where VAT becomes payable upon receipt rather than at invoice issue, is frequently raised in broader technical discussions as a practical way to better align VAT obligations with liquidity pressures.
The concept does not reduce the VAT base or alter declared revenue. It simply adjusts the timing of when VAT becomes due, offering administrative relief for smaller vendors facing cash‑flow constraints.
While not framed as a revenue measure, the limited scope of the payment-basis, paired with a frozen threshold, reinforces SARS’ effective control over SME VAT flows.
Technical Clarity to Reduce Avoidable Disputes
Industry bodies continue to highlight ambiguity in zero‑rating rules, supply characterisation, refund processes, and administrative interactions that create unnecessary verification cycles. Proposals around these issues aim to reduce friction for compliant taxpayers while reinforcing the integrity of VAT legislation.
Annexure C is where the “quiet tightening” occurs: administrative certainty increases, loopholes shrink, and the VAT base is protected, without a single change to the VAT rate.
What This Means for 2026
The public narrative for Budget 2026 will likely reflect a restrained fiscal environment, with the emphasis expected to fall squarely on reinforcing revenue rather than announcing sweeping tax reforms. Watch out for:
- Stricter interpretation‑based VAT audits
- Tougher refund verification and substantiation demands
- Real‑time VAT oversight through digital reporting and e‑invoicing
- Technical amendments via Annexure C that reinforce the VAT base
- Growing pressure on SMEs as threshold misalignment and cash‑flow timing distortions persist
The percentage may remain unchanged. The discipline around it will not.
In a fiscally constrained state, the most dependable tax becomes the most protected, and in 2026, VAT will likely be protected through enforcement intensity, digital transformation, and structural refinement rather than rate hikes.
