Government has proposed that white bread flour, cake flour and sanitary pads should be included in the basket of zero-rated Vat items from April 1, 2019.
This follows after an independent panel in August recommended to then finance minister Nhlanhla Nene that white bread, bread flour, cake flour, sanitary products, school uniforms and nappies be considered for inclusion.
The panel, chaired by Professor Ingrid Woolard, was tasked to review the current basket of 19 items and to consider the most effective way to mitigate the impact of the Vat increase of 1 percentage point on poor and low-income households.
In its medium-term budget policy statement (MTBPS), National Treasury warned that there was little room for large adjustments to tax policy. Although revenue collection has been relatively buoyant during the first half of the year, economic pressure has started to weigh on collections.
Tax experts have previously warned that the inclusion of all six of the recommended items would be an expensive exercise that would only provide some relief to the poor and that other alternatives should also be considered. The panel’s research suggested that the inclusion of all six items would come at a cost of R4 billion, of which only about 70% would benefit the poorest of households.
Finance Minister Tito Mboweni on Wednesday said the revenue loss associated with zero-rating these three items is estimated at R1.2 billion.
“However, zero-rating these products targets low-income households and restores the dignity of our people.”
There has been pressure on government from lobby groups to add chicken products to the basket of zero-rated items as well.