No direct mention of SMEs in 2025 Budget Speech but key opportunities exist

Jenine Zachar

The 2025 National Budget Speech did not explicitly reference small and medium-sized enterprises (SMEs), but several structural reforms, including infrastructure investment, tax compliance improvements, digital transformation, and evolving trade dynamics, create avenues for growth.

With economic expansion identified as a core priority, the Budget’s focus on public-private partnerships (PPPs), energy and logistics development, tax system efficiencies, and infrastructure financing presents opportunities for SMEs that are positioned to leverage procurement opportunities, financial support, and regional trade initiatives.

VAT increase and its impact on SMEs

The proposal is to increase VAT in two phases, from 15.5% in 2025 to 16% in 2026, resulting in a 1 percentage point increase over two years. This increase will have a direct impact on SMEs, particularly those operating in price-sensitive industries where consumer behaviour could shift due to higher costs. Businesses that streamline operations, adjust pricing models, and explore alternative revenue streams will be better positioned to manage the impact.

Income tax adjustments and enforcement measures

While the government opted not to increase personal or corporate income tax rates, it did not adjust tax brackets, rebates, or medical tax credits for inflation, effectively resulting in higher personal tax liabilities for individuals as their earnings increase. This measure is expected to raise R28 billion in additional revenue in 2025/26 and R14.5 billion in 2026/27. The decision to maintain tax brackets at current levels will impact disposable income, which may, in turn, affect SME revenues, particularly in consumer-facing sectors.

Tax compliance and formalisation

The South African Revenue Service (SARS) has been allocated a further R4 billion to enhance tax enforcement and revenue collection measures. This allocation will strengthen SARS’ ability to tackle non-compliance, reduce the tax gap, and improve efficiency in revenue collection.

While this may bring greater scrutiny on businesses, especially for informal businesses, it also creates an opportunity for SMEs that prioritise tax compliance and financial transparency to access government contracts and institutional funding.

Economic growth and SME resilience

The economic growth forecast for 2025 is 1.6%, rising to 1.8% in 2026, reflecting a gradual recovery. While growth remains slow, infrastructure investment and policy reforms are expected to create pockets of opportunity. Slower growth means muted consumer demand, requiring SMEs to be agile in cost management and revenue generation. Businesses that diversify their income streams, expand into regional markets, and integrate digital tools into their operations will be better positioned to sustain growth. Trade finance and expansion capital can provide the necessary support for SMEs looking to scale.

Infrastructure investment unlocks procurement opportunities for SMEs

Over the next three years, the government has committed over R1 trillion towards infrastructure development, with key allocations for transport and logistics, energy infrastructure, and for water and sanitation.

This large-scale investment will stimulate economic activity and create demand for businesses in construction, logistics, and supply chain services. SMEs that engage in government procurement, establish strategic partnerships, and access supply chain financing will be in a position to benefit.

Social grant increases and consumer demand

With 28 million South Africans receiving social grants, including increases in the old age and disability grant, consumer spending on essential goods and services is expected to remain steady. SMEs operating in retail, transport, and other essential sectors can adjust their product offerings to align with spending patterns and optimise logistics to meet demand. Financial institutions supporting these businesses with inventory financing and working capital solutions can help them respond effectively to shifts in consumer demand.

“While SMEs were not explicitly mentioned in the Budget Speech, financial institutions remain key enablers of SME success. Access to trade finance, working capital, and compliance support will be crucial for businesses navigating economic shifts, as they start, manage and grow their operations sustainably. Standard Bank remains committed to enhancing SME access to capital, access to markets and key trade corridors, and continuously enhancing solutions aimed at supporting the development and growth of SMEs in South Africa,” says Jenine Zachar, Head of Value Propositions and Client Experience at Business and Commercial Banking South Africa: Standard Bank Group.