The National Treasury announced it would set up a panel of experts to review and consider the country’s current list of zero-rated items for VAT – the items that will remain untouched by the 1% VAT increase.
The Treasury wants to ensure that the 1% hike in VAT will not be regressive. Although the 19 items on the zero-rated list will remain unchanged, a panel of Treasury experts are considering expanding the list.
The panel will also consider how specific expenditure programmes can be improved to better target poor and low-income households. The panel’s first report is expected to be delivered by 30 June 2018, as draft regulations will be compiled in July 2018.
The idea of expanding the zero-rated items list is not a new one, and is often discussed as a means to soften the blow of budget increases for South Africa’s poorest.
In a report released by Wits University earlier this year, it was noted that taxes on goods hit the lowest earning 10% of South Africa the hardest. This income group spend an average of 13.8% of their disposable income on these taxes compared to 12.6% of the highest earning 10%.
The Davis Committee, which is a committee which assess South Africa’s tax policy framework, admits that the raising of the VAT rate increases inequality.
“It would also make basic goods more expensive and necessitate a proportional increase in social grants and wages in order to maintain the buying power of the poor and workers,” the report read.
Although the report also reads strongly against an increase in VAT, it does outline that expanding the list of zero-rated items may soften the blow.
It states the goods most frequently bought by the poor, including items such as:
– Bread (currently only brown bread is zero-rated)
– Basic medicines
– Pay-as-you-go airtime
– Education-related goods
While these items will also benefit higher-income earners, the share of the disposable income spent on these goods by the poor is higher. This will also help ensure that the basic needs of poorer households are met.
29 March: *Money enters bank account*…
31 March: Debit Order increments takes effect…
01 April: VAT increase takes effect…
04 April: Petrol Price hike takes effect…
When is May coming into effect? pic.twitter.com/ZZS0MvBlyP
— Vuyo Pakade (@VuyoPakade) April 3, 2018
The current zero-rated items in South Africa include:
– Brown bread
– Maize meal
– Mielie rice
– Dried mielies
– Dried beans
– Pilchards in tins
– Milk powder
– Dairy powder blend
– Vegetable oil
– Cultured milk
– Brown wheaten meal
– Edible legumes