Turnover tax moved to R2.3m. Is it actually cheaper?

What actually changed

In the February 2026 Budget the turnover tax threshold was raised from R1 million to R2.3 million, and the tax-free band from R335,000 to R600,000. Both took effect on 1 April 2026. The VAT registration threshold moved to R2.3 million on the same date, so the two now sit at the same line.

Turnover tax is the Sixth Schedule regime for micro businesses. Register for it and it replaces income tax, provisional tax, capital gains tax, dividends tax and VAT in one go. (You can elect to stay in the VAT system if you want to — more on why you might below.) Sole proprietors, partnerships, close corporations, companies and co-operatives can all qualify.

The relief is real. Doubling the tax-free band is a meaningful gift to a genuinely small operation. But turnover tax has a characteristic that gets glossed over in the coverage, and it decides the whole question.

The 2026/27 brackets

For a year of assessment ending between 1 March 2026 and 28 February 2027:

• R0 – R600,000: 0%
• R600,001 – R950,000: 1% of each rand above R600,000
• R950,001 – R1,400,000: R3,500 + 2% of the amount above R950,000
• R1,400,001 – R2,300,000: R12,500 + 3% of the amount above R1,400,000

Which produces these effective rates on total turnover: R800,000 → R2,000 (0.25%). R1.2m → R8,500 (0.71%). R1.5m → R15,500 (1.03%). R2.3m → R39,500 (1.72%).

Those are, on their face, very low numbers. That's the pitch, and for the right business it's an excellent one.

A note for anyone checking the source. SARS's Types of Tax → Turnover Tax page currently prints the third bracket as "R3,500 + 2% of the amount above R600,000". That is a typo. SARS's own Tax Rates → Turnover Tax table and the Budget 2026 FAQ both give the base as R950,000, and the arithmetic agrees: 1% of the R350,000 between R600,000 and R950,000 is exactly R3,500, and 2% of the R450,000 up to R1.4m is exactly the R12,500 base of the next bracket. If you've been working off the first page, recheck your numbers.

The worked example: same turnover, opposite answers

Take two sole proprietors. Both turn over R1.5 million. Neither has other income. Turnover tax for both would be R15,500.

Business A: a consultant, 25% net margin

Profit R375,000. Normal income tax for 2026/27, after the R17,820 primary rebate, is R60,072. Turnover tax would be R15,500.

Saving: about R44,500 a year, plus no provisional tax returns, no VAT201s, and dramatically lighter record-keeping. This is who the regime is built for.

Business B: a small retailer, 6% net margin

Profit R90,000. That's below the R99,000 tax threshold for under-65s, so normal income tax is R0. Turnover tax would be R15,500.

Cost: R15,500 a year on a business that currently pays no income tax at all. That's roughly 17% of the owner's entire annual profit, handed over for the privilege of simpler admin.

Four rules that catch people out

1. Deregistering is permanent

SARS is explicit: if you have been deregistered from turnover tax — whether you chose to leave or were forced out — you may not be registered as a micro business again. You get one go at this. That alone justifies doing the calculation properly rather than eyeballing it.

2. You must apply before the year starts

An existing business must apply before the beginning of a year of assessment, i.e. before 1 March. A brand-new business has two months from the date it starts trading. There is no mid-year switch for an established business, so the practical decision point for most readers is the run-up to 1 March 2027 — which is time you should use, not waste. Registration is always on a TT01 form — the SARS Online Query System, an eBooking or branch appointment, and email are channels for submitting it, not alternatives to it. eFiling doesn't yet accept the TT01 at all.

3. Professional services are largely excluded

You don't qualify if more than 20% of your receipts come from rendering a professional service, or if you're a personal service provider or labour broker. Companies are also excluded where any shareholder isn't a natural person, or where shares or equity are held in another company. You're out too if disposals of immovable property and business assets exceed R1.5 million over three years, or if you've been deregistered from turnover tax before. Ironically the professional-service rule excludes a chunk of exactly the high-margin businesses the maths would otherwise favour — so check eligibility before you get attached to the savings.

One restriction has just gone. Companies used to be disqualified unless their financial year end was 28 February; Budget 2026 removed that, deliberately, to widen the regime. Worth knowing because SARS's own "requirements to qualify" FAQ page hasn't been updated — at the time of writing it still lists the February year-end rule and still gives the old R1 million threshold. It's out of date on both counts.

4. Leaving VAT has its own price tag

Turnover tax replaces VAT unless you elect to stay registered. Dropping out sounds like a straight win, but two things follow. You stop charging VAT — good if you sell to consumers, irrelevant if you sell to VAT-registered businesses who were claiming it back anyway. And you stop claiming input VAT on everything you buy, which for a stock-heavy business is a real cost.

Worse, cancelling a VAT registration triggers deemed exit VAT on the stock and assets you still hold. We've covered that in detail: the VAT threshold moved to R2.3m — should you deregister? →

So who should actually consider it?

Turnover tax makes sense if you have high margins and low input costs — service businesses, consultants outside the professional-service exclusion, trades where labour is the product. It also makes sense if your turnover sits low enough that the R600,000 tax-free band swallows most or all of it, in which case you may pay nothing and file almost nothing.

It's usually wrong for retail, wholesale, manufacturing, construction and anything stock-heavy. Those businesses run turnover many times their profit, and a tax on turnover hits them at a multiple of what income tax would. At R2.3m of turnover on a 5% margin, the R39,500 bill is about 34% of your R115,000 profit — and unlike income tax, it lands whether or not the profit was there.

And it is straightforwardly dangerous for a business having a bad year. Income tax on a loss is zero. Turnover tax on a loss is still due in full.

You need to know your margin to answer this

Everything above reduces to one number: your real net profit margin. Not your gut feel, not last year's, and not turnover minus the expenses you happened to remember.

This is where a lot of small businesses come unstuck. If your expenses live in a glovebox and a WhatsApp thread, your recorded margin is higher than your actual margin — because uncaptured costs simply don't exist in the books. Which means you'd be choosing between two tax regimes using a profit figure you know is wrong, in a decision you can't reverse.

Capture the costs first. Then decide.

This article is general information, not tax advice. The worked examples assume a sole proprietor under 65 with no other income, for the 2026/27 year of assessment. Your position will differ. Confirm current rates and eligibility with SARS or a registered tax practitioner before registering or deregistering.