Rising costs push small developers over R1 million VAT threshold without profit increase

SMEs operating in the property sector enter a new tax threshold, the impact can be on pricing or cashflow management, as they may need to either increase the rental price and price in the VAT amount or absorb the VAT from their own rental income to avoid overpricing their properties in the market. Since the value-added tax (VAT) threshold for businesses has not been adjusted for inflation, risingproperty pricesand construction costs can push small developers and commercial landlords over the R1 million mark without real growth in profitability. In the property sector, the impact can be particularly harsh forsmall operatorsin townships and rural areas.

“They are brought into the VAT net due to price escalation rather than meaningful expansion,” says Micaela Paschini, the team lead for Tax Legal at Tax Consulting SA, and Megan Langton, the tax attorney at Tax Consulting SA. The independent tax practice says the compulsory R1 million VAT registration threshold has not been adjusted since 2009. It says that after 17 years of inflation and economic changes, many small businesses are pulled into the VAT net long before reaching a sustainable scale.

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, the firm says. Once registered, cash flow becomes strained, says Paschini and Langton.

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They say property projects often involve long build cycles and delayed payments, yet VAT is payable to South African Revenue Services (SARS) on taxable supplies even if funds have not been received. Refund delays can further reduce working capital, they say. “The result is higher compliance costs and tighter margins in already price-sensitive markets, making sustainable growth more difficult.” According to the firm, keeping the VAT registration threshold unchanged effectively brings more businesses into the VAT system over time as turnover increases with inflation and economic growth.

It adds to the tax base without increasing the VAT rate. “National Treasury has previously indicated that adjusting the threshold involves balancing competing policy concerns.

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