South African policymakers frequently express their commitment to supporting the Small and Medium-sized Enterprise (SME) sector, yet the 2025 budget reveals a concerning disconnect between words and action. While a revised 1% VAT increase (0.5% this year and 0.5% next year) replaced an initial proposal of 2%, the very lack of concrete SME support within the budget itself speaks volumes. This increase, levied against a backdrop of low economic growth, a shrinking tax base, and dwindling household spending power, is understandably facing significant pushback. The recent VAT hike appears reactive, a knee-jerk response to revenue shortfalls rather than a carefully considered policy decision. The previous VAT increase in 2018, in contrast, followed a multi-year consultative process initiated in 2015, underpinned by thorough impact studies. This difference in approach highlights a concerning lack of foresight and strategic planning regarding the SME sector. The budget's silence on SMEs is deafening. The abbreviation "SME" is absent from both tabled budget speeches, with the only mention of small businesses relegated to a single line about reduced data bundle costs. This lack of direct engagement reveals a failure to grasp the critical role SMEs play in the South African economy and their unique challenges. For smaller SMEs, particularly those with annual revenue under R10 million, the impact of VAT is particularly significant. The VAT registration threshold, set at R1 million in 2009, remains unchanged despite inflation having eroded its real value to roughly R2.2 million today. This stagnation effectively traps more businesses within the VAT net, increasing their administrative burden without commensurate support. Further complicating the situation, SARS (South African Revenue Service) data reveals a decline in active VAT-paying SMEs despite the increase in registered vendors. In 2009, 72% of registered vendors were active; today, that figure is 50.9%. This drop is particularly concerning given the introduction of the Amended Broad-Based Black Economic Empowerment codes in 2013, suggesting that current regulatory approaches are failing to stimulate economic growth. The current VAT system exacerbates the cash flow challenges facing SMEs. While the VAT Act allows for a cash basis in specific cases, the majority of active VAT vendors operate on an invoice basis. This means VAT liability accrues upon invoice issuance, not payment receipt. A business generating R100,000 in revenue immediately faces a tax obligation of 15% (or 15.5% under the new proposal) regardless of payment timing. Failure to meet this obligation results in a 10% penalty, further straining already limited resources. This situation encourages SMEs to avoid compliance, creating a challenging environment for both businesses and SARS. The allocation of an additional R4 billion to SARS for tax collection, while necessary, could further intensify compliance pressure and inadvertently drive SMEs toward offshoring operations. SMEs face the same compliance burden as large corporations without equivalent resources, creating a fundamentally unfair system. The critical question remains: Where are the incentives for SMEs that are creating jobs and contributing to economic value? The budget speech offers no answers. The current approach frames SMEs as part of the problem, not the solution. A fundamental shift is needed – moving beyond rhetoric to a deep understanding of the SME ecosystem and collaboratively reimagining a supportive and sustainable environment for their growth.