VAT vs Turnover Tax: What’s the Difference?
Quick Answer
VAT vs Turnover Tax: What's the Difference?
VAT is a 15% consumption tax you charge customers and hand to SARS – compulsory above R2.3 million in taxable sales. Turnover tax is an optional simplified income tax for micro businesses (turnover up to R2.3 million) at 0% to 3% of turnover. One taxes your sales to others; the other taxes your business.
What this means in plain language
They confuse people because both now share the R2.3 million number. The VAT threshold decides when you must register for VAT. The turnover tax ceiling decides whether you may elect the simplified system. A business can be inside one, both or neither.
In the VAT system you are SARS’s collection agent: charge 15%, claim input VAT on purchases, pay the difference on the VAT201. In turnover tax you replace income tax with a small percentage of turnover and forget about expense deductions.
Who this applies to
- Small business owners choosing tax registrations
- Micro businesses wondering how the two systems interact
What it costs
| Item | Cost / detail |
|---|---|
| VAT | 15% charged on sales, input VAT claimed back, difference paid on VAT201 (usually every 2 months) |
| Turnover tax | 0% – 3% of turnover, paid twice a year with an annual return |
Common mistakes to avoid
- Thinking turnover tax registration removes VAT obligations – a compulsory VAT registration still applies if you cross the VAT threshold.
- Charging VAT without being registered – that is unlawful, and the money collected is owed to SARS regardless.
- Ignoring what your customers are: if they are VAT-registered businesses, your VAT registration usually makes you cheaper, not dearer, to them.
A South African example
Two Rustenburg businesses each turn over R1.8 million. The consultant elects turnover tax and is not VAT-registered – simple and cheap. The engineering supplier registers for VAT because its clients are mines that claim the VAT back – its prices effectively stay the same to them.
Related questions
- What Is Turnover Tax in South Africa? (2026 Rules)
- SARS Tax for Small Businesses: The Complete 2026 Guide
Always verify this information with official South African government sources. Rules, fees and thresholds change. Check SARS, CIPC, the Department of Employment and Labour or gov.za before you act.
Frequently Asked Questions
If I pay turnover tax, must I still charge VAT?
Only if you are registered for VAT. Turnover tax replaces income-type taxes, not the VAT registration obligation. Cross the R2.3 million VAT threshold and VAT registration is compulsory regardless.
Which is cheaper, VAT or turnover tax?
They are not alternatives – VAT is a tax on consumption that mostly passes through your business, while turnover tax is a tax on your business itself. The real comparison is turnover tax versus normal income tax.
What is the VAT registration threshold versus the turnover tax ceiling?
Both are R2.3 million from 1 April 2026 – coincidentally the same number. VAT: compulsory above it. Turnover tax: available at or below it.
Official sources
About BizAnswers: BizAnswers is a privately owned South African company – not a government department. Our guides are free to read and show you how to do things yourself through official channels. If you would rather have the paperwork handled for you, we assist individuals and businesses with filing their South African tax returns and staying compliant, which is a paid service, not a free government service. Contact us for help.
Last reviewed: September 2026 by the BizAnswers editorial team. How we write and check our guides.
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