Treasury has hard choices to make, says VAT panel chair

(Pic: Allison Jeftha, Fin24)
(Pic: Allison Jeftha, Fin24)

The value added tax (VAT) panel made an input to the process to decide on zero-rated items and it will be up to National Treasury to make the hard choices, according to chair of the VAT penal Professor Ingrid Woolard.

The VAT panel will present its report to the Standing Committee on Finance on Tuesday and the public has until Friday to comment on their findings.

The report released earlier in April recommended adding white bread, bread flour and cake flour, sanitary products, school uniforms and nappies to the list of 19 currently VAT-free products.

Woolard, who spoke to Fin24 on the sidelines of the African Review of Economics and Finance conference at the Wits Business School last week, said the panel received more than 2 000 submissions from individuals and industry bodies.

"There’s no other tax that effects people so directly, every man woman and child. Every baby is effectively paying VAT," Woolard said.

Woolard added that Treasury had hoped the VAT panel would have considered a luxury tax on high-cost items and disaggregating more finely fruits and vegetables from the zero-rated list.

She said luxury goods are already taxed through excises and removing certain fresh produce, such as strawberries or kiwi fruit from the VAT free list would make it more difficult to administer

"This is why this process is so important, once an item is on the [VAT free] list, it’s very difficult to remove it."

"VAT is an easy tax; it doesn’t cost much to administer. The real capacity issues with a capable state are on the expenditure side," said Woolard, who is also the Dean of the Faculty of Economic and Management Sciences and Professor of Economics at Stellenbosch University.

Tax morality

A number of delegates from several African countries at the conference raised concerns about corruption and the way taxes are spent on the continent. Woolard agreed that this was an issue in SA as well.

“Taxes are always quasi-voluntary. I do think we need to rapidly address the fact that we are seeing a reduction in tax morality, [as well as] tax avoidance; that is a problem."

Woolard's comments come in the same week that the Nugent Commission of Inquiry into governance at the South African Revenue Services (SARS) heard from senior officials about the inability of the revenue agency to enforce and check compliance, due to a 2015 restructuring plan overseen by suspended commissioner Tom Moyane.

Woolard said that the panel also recommended methods to shield the poor from the VAT hike, including an increase to social grants.

Treasury, in the February budget, planned to collect an extra R22bn by raising VAT to 15%, effective from April 1. The five extra items, recommended for zero-rating by the panel, will cost the fiscus approximately R4bn.

This was one of the reasons that the panel decided against zero-rating chicken, despite it being a staple item for poorer households, as it will represent R4bn in lost revenue alone to Treasury - and there’s no guarantee the zero-rating will be passed on to the consumer, due to the number of chicken producers being highly concentrated, according to Woolard.

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