A panel of experts appointed by Finance Minister Nhlanhla Nene has suggested that VAT be scrapped on bread and a few other basics. The Treasury announced it recommends that the following items be zero-rated:
• White bread, bread flour and cake flour;
• Sanitary products;
• School uniforms; and
• Nappies, including cloth and adult nappies.
The panel was established amid a post-budget backlash against the budget VAT increase.
“The Minister appointed the panel after the announcement in the budget in February of the increase in the rate of value-added tax (VAT) from 14 to 15 per cent effective from 1 April 2018,” announced the Treasury.
“The panel submitted its report to the Minister on Monday, 6 August 2018.
“The panel further recommends that government should expedite the provision of free sanitary products to the poor and that the zero-rating of school uniforms be done only if they can be separated from general clothing.
“For each of the recommended items, the panel suggests that National Treasury does further work to “ensure that the benefits of zero-rating accrue to consumers and are not captured by producers”.
“The report also highlights some programmes on the expenditure side which would assist poorer households, such as the strengthening of the National School Nutrition Programme and increases in the Child Support Grant and Old Age Pension.”
The panel had been mandated to evaluate the current list of zero-rated food items, to consider the inclusion of additional zero-rated items, and to consider other measures (such as expenditure programmes) to mitigate the impact of the increase on poorer households.
“As was the case with the reports of the Davis Tax Committee, the panel’s report provides the Minister of Finance with a set of recommendations. These recommendations are subject to further public comment, including comments to be made during Parliamentary hearings,” said the Treasury.
“Taking the recommendations and the public comments, as well as the evaluation of the recommendations by National Treasury and the South African Revenue Service (SARS), the Minister of Finance will then decide which of the panel’s recommendations to implement.
“Some of the changes may still be included in the draft tax legislation that is currently being processed by parliament’s Standing Committee on Finance.”
Any increase in VAT is considered controversial, as it is a tax which has a disproportionate effect on the poor.
Said Alf Lees, Shadow Deputy Minister of Finance: “The decision by the Independent Panel on the review of the current zero-rated items, to add only 8 items to the list is underwhelming and will do little to cushion poor households whose spending power has been squeezed by the 1 percentage point VAT increase announced in the 2018 National Budget.
“The DA remains firm on its position that the only effective measure to protect the poor and solve the government’s fiscal squeeze will be to scrap the 1% VAT hike and cut expenditure.
“The bloated public service, and the public sector wage bill must be frozen in order to offset the revenue shortfall that may triggered by the scrapping of the VAT increase.
“The zero rating of additional items will be of marginal benefit to the poor and is not the answer. The revenue lost will be recovered elsewhere and this will, in any event, end up being paid by the poor.
“South Africa’s poor households are already facing added cost of living pressure from fuel price hikes and it is essential that the government focuses on cutting its own fat rather than adding more demands on their meagre incomes.”
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