Are 19 VAT-free items enough to save the poor when VAT hike hits?

Cape Town - Although 19 food items are currently free from value-added tax (VAT), the increase in VAT from 14% to 15% on 1 April 2018 raises the issue of the potential impact, especially on the poor, according to Charles de Wet, a partner and director at PwC.

Former finance minister Malusi Gigaba announced the VAT increase in Budget 2018 in February.

"For most South African VAT was not something we spent much time thinking about but that has all changed," said De Wet.

"However, it is arguable that poor households live on more than just these listed items and their preferences have also changed since 1993 - such as white bread, chicken and flour to name a few."

He added that the poor require items other than food stuff to survive - such as electricity, gas and water.

"The poor deserve to have their dignity protected too. (There are) heart breaking stories of young girls and women missing school or work as they are not able to afford sanitary products," he pointed out.

"Communities, families, friends, experts, unions and the government have engaged in discussions about the increase in the VAT rate and the impact it will have on the poor. Rather than scraping the increase, government has expressed its view is to investigate other avenues to alleviate this burden on the poor."

In conjunction with the increase in the VAT rate, it was announced that social grants will also be increased over and above the inflation rate. For De Wet, however, the question remains whether such an increase would be enough. He also wonders how much the so-called "missing middle" will suffer because of the VAT increase.

He said a popular view is that the list of zero-rated items should be reviewed.

Currently the list comprises of 19 items and has not been revised since 1993.  

The list currently includes the following items:

  • Brown bread
  • Maize meal
  • Samp
  • Mealie rice
  • Dried mealies
  • Dried beans
  • Lentils
  • Pilchards/sardines in tins
  • Milk powder
  • Diary powder blend
  • Rice
  • Vegetables
  • Fruit
  • Vegetable oil
  • Milk
  • Cultured milk
  • Brown wheat meal
  • Eggs
  • Edible legumes and pulses of leguminous plants

De Wet told Fin24 that it would be interesting to survey Fin24 users to obtain more information on the basic food types they buy and which items users think should qualify as basic food types so as not to be subject to VAT. In his view, chicken is a good example at the moment.

Add your voice and share your views on what you buy and which additional items you think should not be subject to VAT. Respond here.

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