By:Pat Mokgatle, Partner of Business Services Outsourcing at BDO.
SMEs are finally being recognised for what they truly are – the backbone of the South African economy.
It is encouraging to see that the 2026 Budget has deliberately incorporated entrepreneurial behaviour into its policy framework, with tangible tax relief and practical measures aimed at helping businesses survive and grow in an exceptionally tough economic environment. While the projected economic growth of 1.6% remains below global benchmarks and insufficient on its own to materially reduce unemployment, the direction of travel is clear: sustainable growth will be driven by small and medium enterprises and family‑owned businesses.
What makes this budget stand out is not grand rhetoric, but the targeted relief provided to SMEs at critical pressure points : cash flow, compliance costs and exit planning.
VAT Threshold Relief: A Practical Win for Small Businesses
One of the most meaningful interventions for SMEs is the increase in the compulsory VAT registration threshold from R1 million to R2.3 million.
For years, small business owners have argued that the existing threshold failed to keep pace with rising operating costs, forcing businesses into premature VAT registration and adding compliance burdens long before they had the administrative capacity to manage them. The increase provides immediate cash‑flow relief, reduces administrative friction and allows growing businesses to focus on scale rather than compliance.
For many SMEs operating close to the previous threshold, this change alone will materially improve sustainability.
Capital Gains Tax Relief Supports SME Succession and Exit
The budget also recognises that entrepreneurship does not end at start‑up – it must include viable exit strategies.
Government has increased the capital gains tax exemption on the disposal of a small business for older persons from R1.8 million to R2.7 million, while also raising the qualifying business value from R10 million to R15 million. This is a significant shift.
In practice, this supports succession planning, intergenerational transfers and orderly exits, particularly for family‑owned enterprises. It acknowledges the reality that many business owners rely on the eventual sale of their businesses as a retirement asset and deserve fair tax treatment when exiting after decades of value creation.
Bracket Creep Alignment Eases Pressure on Entrepreneurs
While personal income tax relief is often framed as a household measure, it is particularly relevant for owner‑managed SMEs.
The full inflationary adjustment of personal income tax brackets and rebates reduces the impact of bracket creep, ensuring that entrepreneurs are not pushed into higher tax brackets simply due to inflationary increases in drawings or salaries. In an environment where margins are already compressed, this adjustment helps preserve disposable income and reinvestment capacity.
A Stable Fiscal Framework Matters for SMEs
Beyond direct tax measures, the broader fiscal stance of the budget is also SME‑friendly.
The decision to withdraw the R20 billion in previously proposed tax increases, supported by stronger‑than‑expected revenue collection, sends an important signal of fiscal discipline without overburdening businesses. For SMEs, predictability and stability are often as important as tax rates themselves.
In addition, the commitment to infrastructure investment exceeding R1 trillion over the medium term – particularly in energy, logistics and transport – addresses structural constraints that disproportionately affect small businesses. Load shedding, port inefficiencies and failing municipal services hit SMEs first and hardest. While these reforms will take time to materialise, the intent is clearly aligned with enabling business activity.
The Bigger Picture: SMEs as the Growth Engine
Despite these positive measures, it must be acknowledged that a 1.6% growth outlook remains insufficient to address South Africa’s unemployment crisis. This reinforces the central message of the budget: large‑scale growth will not come from the state alone.
SMEs and family businesses are not a peripheral consideration – they are the future of inclusive growth. The 2026 Budget reflects a growing understanding that supporting entrepreneurs through targeted tax relief, reduced compliance burdens and infrastructure reform is not a concession, but an investment in the country’s economic resilience.
The challenge now lies in execution. If these measures are implemented consistently and supported by continued structural reform, this budget may well be remembered as the point at which policy finally began to align with the realities faced by South African entrepreneurs.
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