The year 2009 was a long time ago. We were all getting used to the new, and presumed only temporary, measure of load-shedding. We were excited about the coming 2010 Fifa World Cup. It was also the year Jacob Zuma was inaugurated as president of the country. The Gautrain was not yet in operation, but we were excited about that as well.
Down in the Cape, a skinny former player nicknamed Rassie had just started coaching the Stormers, and everyone was buying a BlackBerry. That year was also the last time that government adjusted the compulsory VAT registration threshold.
Right now a business must register for VAT once the value of its taxable supplies exceeds R1m in any consecutive 12-month period, and it must do so within a relatively short window once that line is crossed. The threshold was last raised in 2009, from R300,000.
This means an entire generation of entrepreneurs has built businesses in a country where the VAT “line in the sand” has never moved, even though absolutely everything else increased. Expenses like rent, electricity, payroll, fuel, compliance costs, software and professional services more than doubled in the past 17 years. In January 2009, a litre of petrol in Johannesburg would have cost you R7.69 - Capetonians might have paid less than R7.
VAT, the stealth-bomber of taxation
The easiest way to explain this problem is as a reverse tax increase that government does not need to announce to anyone; essentially a stealth tax increase through inflation. Statistics South Africa’s Consumer Price Index (CPI) indicates the average headline CPI index at 47 in 2009, and 102.5 in 2025. In layman’s terms, your money is worth less than half what it was in 2009.
For the exact same job you did in 2009 you could reasonably expect double your money in 2026, because you need twice as much to buy the same basket of products at the local supermarket. Yet despite prices rising, the VAT threshold acted like some kind of prehistoric mammoth and simply stayed frozen for posterity to dig up at some point and ask: hey, why is this here?
By staying fixed, it became a steadily closing net, forcing more and smaller firms into the VAT net each year, not because they suddenly became big fish but because the rand became smaller.
In real terms, the threshold has been shrinking for more than 15 years. A R1m business in 2009 is not the same creature as a R1m business today. The amount of salaries you could pay, products you could move and marketing you could buy with that amount of money in 2009 leaves your current abilities with a similar amount in complete shade.
The R1m firm in 2009 was a genuine small enterprise slowly finding its feet. The R1m firm in 2026 is a micro-firm, often a one-man operation, that has simply managed to survive a decade of higher input costs and higher operating costs and higher everything.
What’s worse is that VAT is not levied on “profit”. It is levied on turnover at the point of sale, regardless of whether you’ve actually made money once rent, wages, fuel, insurance, security, bad debt and all the other costs are paid. You don’t get to deduct your overheads the way you do for income tax.
Sure, vendors can claim input VAT on qualifying business purchases, but that is not the same thing as taxing net income because many costs don’t carry recoverable VAT (or are only partly recoverable), and in the meantime the business still has to fund the cash flow and compliance burden of collecting and remitting VAT on sales.
No taxation without service provision
VAT registration is also not merely a matter of “paying your share”. VAT entails a costly compliance regime, feeding a bloated and unproductive government. Once registered, a vendor must charge VAT on taxable supplies, issue compliant invoices, keep records, submit returns, reconcile inputs and outputs, and live with the ever-present possibility of penalties and interest when something goes wrong.
Compliance costs do not scale easily. They are in fact regressive —meaning the smallest are hit hardest. These firms are hit hardest since they are the most exposed, they have the least spare time, the least spare cash, and the least tolerance for risk.
These obligations are manageable in a mature firm with systems, staff, lawyers on payroll and cash buffers. They are far more punishing in a small firm where the “finance department” is a tired business owner at a kitchen table, doing the books after the kids have finally finished their homework.
Compliance costs do not scale easily. They are in fact regressive —meaning the smallest are hit hardest. These firms are hit hardest since they are the most exposed, they have the least spare time, the least spare cash, and the least tolerance for risk.
Some small businesses have resorted to avoiding new contracts that would push them over the threshold. Some businesses split their operations. Some keep part of the business informal. Others simply stagnate because growth comes bundled with a sudden administrative leap. Because crossing that threshold can turn a fragile, working enterprise into a compliance treadmill.
If we take a step back we can see the rotten principle behind it all. The government is supposed to activate and encourage growth, but at the moment it is doing the exact opposite. It is not only failing small businesses, it is actively demotivating growth.
Fix it
If the CPI index average moved from 47 (2009) to 102.5 (2025), a threshold that was R1m in 2009 is closer to R2.2m today in real terms. The best solution would be an annual indexing. Government is highly capable of increasing minimum wages annually, despite a third of people not having a job in the formal economy, yet when it comes to regulations that would put that third into the workforce, well, they are less encouraged, apparently.
South Africans are tired of “reviews” that never arrive and promises that expire at the next cabinet reshuffle. If government truly believes a compulsory threshold is necessary (and there are reasonable arguments that it is), then it should also accept the principle that thresholds should not quietly tighten by default. Indexing to CPI is not radical.
Updating the VAT registration threshold and then indexing it so we never have this argument again, is exactly that kind of lever. It is not flashy. It will not trend on social media. But it is the kind of pragmatic reform that signals to the economy: grow, formalise, hire - the government will not punish you for succeeding.
• Maritz is a director at Free SA.
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