Cosatu: Further VAT exemptions may not benefit the poor


With the expert panel on the zero-rated value-added tax items having submitted its report to National Treasury, labour has questioned whether the recommendations - once implemented - will benefit the poor. 

In a statement, Congress of South African Trade Unions (Cosatu) parliamentary coordinator Matthew Parks overall welcomed the additional "basic necessities" to the list of zero-rated items, but said the federation was disappointed that the VAT hike was not scrapped.

Among the items recommended to be zero-rated were white bread, sanitary pads, nappies and school uniforms.

The panel also cautioned government to ensure that benefits are not "captured" by producers.  

Cosatu has echoed these views and called for government to explain how it will ensure VAT exemptions result in price cuts for the products concerned.

"If not, then we face the risk that retailers will simply pocket the VAT exemptions and the poor will be ripped off once again," the statement read.

Speaking to Fin24 by phone on Monday, Tertius Troost, senior tax consultant at Mazars South Africa, explained how producers could possibly pocket more profit on zero-rated items.

"If a product costs R10 excluding VAT and R11.50 including VAT, if the item becomes zero-rated, the price should come down to R10,” he explained.

However, producers could keep the price at R11.50, or just bring it down to R11, and in so doing, take extra profit.

There is a recommendation that the Competition Commission step in to monitor this, but it will be difficult, Troost warned. Treasury will have to explore how pricing can be better policed.

Regulation hurdles

Another sticking point is school uniforms. The panel recommended that school uniforms be better defined or separated from general clothing.

For example, a white shirt for a matric pupil could easily pass as a white shirt for a young adult, Troost explained. The cost of regulating this may outweigh the benefit.

For this reason, Treasury might not accept the proposal for school uniforms, he said.

Troost said that Treasury might not accept all other items recommended as this could take a chunk - some R4bn - out of possible revenue raised, calling for a tough balancing act.

Troost said although the current list of items was a step in the right direction, he thought a bar of soap or candles might also make it onto the list, as these items are used by the poor.

Economist Gilad Isaacs of the Institute for Economic Justice commended the panel's detailed report. However, he said there was not enough clarity on how the 66 items proposed for the list were narrowed down to eight which were ultimately investigated.

The current list also focuses on benefiting the bottom 40%, which does not account for all of SA’s people who are classified as poor (55%), Isaacs explained.

Isaacs also expected the panel to make bolder proposals, but these to have been constrained by the current fiscal framework. "The measures suggested are quite restrained; they could have been bolder," he said.

He added that he would be reviewing the report in more detail and possibly providing input. The public has until August 31 to make further submissions to Treasury.

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