Budget 2022

Mini budget: Treasury expected to weigh in on zero-rated items


Finance Minister Tito Mboweni is expected to make announcements in the mini budget about the progress Treasury is making on the review of zero-rated items, according to analysts.

During a panel discussion ahead of the mini budget to be held on October 24, Mazars senior tax partner Bernard Sacks shared views on the VAT hike and the zero-rated items list which is currently under review.

National Treasury's VAT hike of 1% came into effect on April 1, with the hope that it would raise R23bn to help plug the revenue gap.

Another VAT hike?

Sacks is of the view that Treasury may consider another VAT hike at the National budget in February to "balance the books" – however, national head of tax Mike Teuchert pointed out that since 2019 is an election year, the political will may not be there to support such a move.

"VAT is an easy one to increase, but politically it will not happen," said Teuchert.

Teuchert also shared views that we may "get comment" in the mini budget about the list of zero-rated items under review. There are 19 items on the current list.

Sacks believes it is beneficial to have zero-rated items, as the effect can be felt across the value chain. All of the players in the value chain contributing to the production of an item can claim VAT. But having something zero-rated means that all the input cost added along the production chain will be eliminated for the consumer.

In a report released in August, the VAT panel recommended to Treasury that four additional items - namely white bread and flour, school uniforms, sanitary pads and nappies - be added to the list. Parliament's Standing Committee on Finance and Treasury have heard public submissions on the report.

However, adding the proposed items could decrease revenue collection by about R4bn.

Sacks said there was a good chance that a number of products might be reconsidered, including those on the list.

The panel was split on poultry, but this item alone would cost the fiscus R3bn. If chicken is included on the list, then it means other items might have to be removed, remarked tax manager Tertius Troost.

Sacks commented that government has acknowledged that consumers are under pressure - as was seen when government intervened in September to limit the fuel hike to 5c/l. At the time, the fuel price should have increased by R1/l, said Sacks.

"People are under extreme pressure. Government must help with keeping the economy going," he said.

* Visit Fin24's 2018 mini budget hub for all the news, views and analysis.

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