The SA Reserve Bank has made it clear that it wants inflation anchored closer to 3%.
In practice, this means higher interest rates for longer. Small businesses, households and consumers are all expected to carry this burden of discipline.
But while monetary policy has shifted, our tax policy has stood still.
The VAT registration threshold has been fixed at R1m turnover since 2009. If it had simply been adjusted each year in line with inflation, the threshold would now sit at just over R2m.
The failure to make this adjustment has created a silent tax trap for small businesses.
For many entrepreneurs, the consequences are real and painful. The moment a small firm crosses the R1m line, it has to add 15% VAT to its prices, or swallow the cost and see margins evaporate.
A plumber, a hairdresser or a B&B operator who grows just beyond the threshold suddenly finds themselves less competitive, even if they are barely breaking even.
At the same time, higher interest rates aimed at bringing inflation down to 3% have increased the cost of borrowing.
Households cut back on spending, leaving consumer-facing businesses to survive on thinner volumes. Put differently: small businesses are squeezed from both sides.
They cannot raise prices without losing customers, yet they cannot grow comfortably without being penalised by outdated VAT rules.
Consider the case of a Mdantsane salon owner. After years of hard work building a loyal customer base, her business finally pushed beyond R1m turnover last year.
But instead of celebrating, she found herself in a bind.
Registering for VAT meant either raising prices for working-class customers, who were already struggling with food and transport costs or absorbing the VAT herself.
Neither option was sustainable. With loan repayments climbing because of higher interest rates, her dream of expanding into a second branch is in the freezer.
Her story is the daily reality of hundreds of small business owners across SA.
This mismatch between inflation targeting and VAT policy creates perverse incentives.
Instead of scaling up, many entrepreneurs find it is better to limit their turnover to remain under the R1m line.
Others are pushed into creative workarounds that add complexity and risk.
Either way, the economy loses — and so does job creation.
It is worth remembering that small businesses are not a side issue in SA’s economy.
They are the backbone of job creation, especially in townships and rural areas where formal employment opportunities are scarce.
Every unnecessary barrier placed on their growth translates into fewer jobs for young people and less resilience for communities.
If SA is serious about disciplined, sustainable growth, then policy must be consistent.
The Reserve Bank cannot demand strict inflation discipline while the Treasury leaves tax thresholds frozen in time.
The fairness principle is simple: if inflation is being held to 3%, then the VAT threshold should, at the very least, increase at the rate of inflation each year.
This would not only remove a major barrier to small business growth, but send an important message that the government understands the realities faced by entrepreneurs on the ground.
It would cost the fiscus far less than the dynamism it would unlock.
Small businesses do not ask for special treatment.
They ask for fairness, consistency and a chance to grow without being punished by outdated rules.
Raising the VAT threshold in line with inflation is a small but crucial step towards exactly that.
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