The 2025 South African Budget Speech introduced several key changes that impact small and medium-sized enterprises (SMEs). As an accounting firm, we understand the challenges of navigating tax adjustments, economic policies, and financial planning. This article breaks down the key takeaways from the budget and how they will affect your business.
1. Economic Outlook: A Mixed Bag for SMEs
The government forecasts 1.9% GDP growth in 2025, an improvement from 0.8% in 2024, but still slow. Household consumption is expected to rise by 1.9%, meaning there could be a gradual increase in consumer spending. However, a weaker current account balance (-2.3% of GDP) and growing government debt remain concerns.
For SMEs, this means business conditions could slowly improve, but access to funding and cash flow management remain critical.
2. Tax Changes: What’s New for SMEs?
The headline tax change is the increase in VAT:
- VAT increases from 15% to 15.5% on 1 May 2025, and to 16% on 1 April 2026.
- While the government introduced VAT zero-rating on some essential food items, businesses that are VAT-registered will need to adjust pricing and cash flow projections accordingly
Turnover Tax for Micro Businesses For businesses earning under R1 million per year, the tax rates remain unchanged:
- 0% tax on turnover up to R335,000.
- 1% tax on turnover from R335,001 to R500,000.
- 2% tax on turnover from R500,001 to R750,000.
- 3% tax on turnover above R750,000.
For SMEs using the Small Business Corporation (SBC) tax regime:
- First R95,750 of taxable income is tax-free.
- Taxable income between R95,751 and R365,000 is taxed at 7%.
- Income above R550,001 is taxed at 27% (same as regular company tax rate).
This is good news for SMEs, as there are no new tax burdens, but businesses must prepare for indirect tax increases due to VAT hikes.
3. Government Spending and Support for SMEs
The budget allocates R289.8 billion to economic development, the fastest-growing expenditure category at 8.1% annual growth. Key areas include:
- R175.7 billion for infrastructure to boost economic activity.
- R40.8 billion for industrialisation and exports, which could benefit businesses in manufacturing and trade.
- R23.7 billion for job creation, helping SMEs access wage subsidies and training incentives.
These investments present opportunities for SMEs in sectors linked to government contracts, infrastructure, and skills development.
4. No Personal Income Tax Relief – Tightening Margins for Business Owners
Unlike previous years, personal income tax brackets and rebates were not adjusted for inflation. This means that individuals earning the same salary will pay more tax in real terms, reducing disposable income.
For SME owners, this affects both their personal financial planning and customer spending patterns. As costs rise, businesses may need to reconsider pricing, salaries, and benefits to retain staff and maintain profitability.
5. Fuel and Excise Duties – No Immediate Relief
- No changes to the general fuel levy and road accident levy – a welcome relief for businesses reliant on transport.
- Excise duties on alcohol and tobacco increased by 6.75% – impacting hospitality, retail, and related industries.
While stable fuel costs help transport-heavy businesses, higher excise duties will affect margins in restaurants, liquor stores, and tobacco-related industries.
6. Debt Stabilisation – Government’s Long-Term Strategy
South Africa’s debt is expected to stabilize, with the budget deficit narrowing from -5% of GDP in 2024/25 to -3.5% by 2027/28. Debt-service costs remain high at 22% of total government revenue, limiting available funds for business incentives.
This means businesses should not expect major new funding initiatives, and private financing will continue to play a key role in business expansion.
Key Takeaways for SMEs
- VAT increases will impact pricing and cash flow – businesses need to adjust budgets to account for the extra tax burden.
- No changes to corporate tax rates, but no personal tax relief means spending power may decline.
- Government investment in infrastructure and job creation presents opportunities for SMEs to access contracts and support programs.
- SME-friendly tax structures remain unchanged, keeping micro-businesses and SBCs on a low-tax regime.
- Fuel levies remain unchanged, helping businesses reliant on transport, but excise duty increases will impact alcohol and tobacco-related industries.
How SMEs Should Prepare
- Update your pricing strategy: Consider how the VAT hike will impact your pricing, margins, and customer spending.
- Plan for potential wage pressures: With rising inflation but no tax relief, employees may demand higher salaries.
- Look for government tenders and infrastructure contracts: Increased spending on economic development and infrastructure presents opportunities for SMEs.
- Monitor funding opportunities: With no major tax cuts or incentives, business loans, private funding, and cash flow management will be crucial.
Final Thoughts
The 2025 Budget presents a mix of challenges and opportunities for SMEs. While the VAT hike and lack of personal tax relief may tighten cash flow, the government’s commitment to infrastructure, job creation, and small business incentives offers growth opportunities for those who position themselves strategically.
You can download the PDF docs here:
Need help navigating these changes? Our team can assist with tax planning, compliance, and financial strategy to ensure your business remains resilient and profitable in 2025 and beyond.
