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Recommended items for zero-rating will cost fiscus R4bn

70% of the relief will benefit poor households.
White bread, white flour, cake flour, sanitary products, nappies and school uniforms have been recommended for zero-rating. Image: Shutterstock

The final report by the ministerial panel of experts investigating the expansion of zero-rated value-added tax (Vat) items has, in most parts, been welcomed.

The panel has recommended the zero-rating of six additional items, which will cost the fiscus R4 billion – 70% of the relief will benefit poor households.

The items include white bread, white flour and cake flour, sanitary products, nappies and school uniforms. Another two items were considered – infant milk formula and frozen chicken parts – but not recommended for zero-rating. Had they been included, the total revenue foregone would have amounted to R10.4 billion.

Finance minister Nhlanhla Nene appointed the panel following the increase in the Vat rate from 14% to 15% in April resulting in expected additional revenue of almost R23 billion. Vat accounts for about 26% of total tax collections.

South Africa has two tax rates (0% and 15%), with 19 items currently being zero-rated – a measure introduced to provide some relief to low-income households which spend a relatively high proportion of their income on the zero-rated items.

Tax experts said over the weekend that the panel was given an extremely difficult task to perform in a relatively short timeframe given the amount of research needed.

National Treasury published the independent expert report on Friday, allowing time for comment until the end of this month.

Duane Newman, director of Cova Advisory, says the panel has also analysed the current list of zero-rated items, where total relief of R26.8 billion is provided.

“The panel clearly focused on products that would have the biggest impact on the poor,” says Newman, who chairs the Vat work group at the South African Institute of Tax Professionals (Sait). “I believe they have been successful in their analysis. It is vital that the recommendations are assessed quickly and that a final decision by the minister of finance is made as soon after the deadline for further comments [as possible]. The poor are depending on decisiveness.”

Tertius Troost, senior tax consultant at Mazars, believes the six items are sufficient given the fact that government is giving relief of R4 billion on these items.

The experts considered 66 items, but only addressed eight in their report and it is doubtful whether treasury will zero-rate all the recommendations.

The panel says zero-rating a long list of relatively minor products can increase the possibility of abuse and thereby a reduction in tax revenue. Abusive practices commonly entail suppliers deliberately misclassifying their sales to be zero-rated when they should be standard rated (15%), or collecting the Vat from their customers and not paying it over by misrepresenting these sales to the South African Revenue Service (Sars).

Items that were suggested for zero-rating included books, mango atchar, broadband internet access, noodles, yoghurt and Vat on property and rent. Troost says he would have expected to find soap and candles on the list, but did not expect white flour and cake flour to be included.

He expressed concerns about the monitoring and policing required to ensure that the reduced costs of zero-rated items are filtered through to consumers.

“If the actual price is not reflected it means producers or retailers are still making profits and the benefits do not reach consumers,” says Troost.

The panel, chaired by professor Ingrid Woolard, says government should establish mechanisms to ensure that retailers pass the full value of the Vat relief through to consumers. “Mechanisms to achieve this aim could include, for instance, investigations by the Competition Commission and publication by Statistics South Africa (Stats SA) of reference prices for zero-rated goods as part of the Consumer Price Index (CPI) data.”

The panel agreed that while white bread and white cake flour are not the most nutritional options to include, changing consumer behaviour to increase consumption of wholewheat bread is a long-term project (not necessarily focused only on the poor).

“Therefore, it makes economic sense to zero-rate white bread to relieve the financial stress of the poor population while the government, Department of Health (DoH) in particular, is attempting to influence the South African population across the life-cycle to make informed, healthy food and nutrition decisions,” the panel concluded.

The panel acknowledges that zero-rating sanitary products will not be sufficient as the current cost is already preventing poor women from using these products. “While it sounds straightforward to provide free sanitary products (for example through schools and government clinics), in practice the state has been unable to deliver on this, despite commitments going back at least seven years,” the panel states in its report.

Disposable nappies will offer tax relief of R538 million – or 71% of the total Vat relief of R795 million – to households in deciles 1 to 7. In terms of Stats SA’s 2014/15 Living Conditions Survey, the average income for decile 1 amounts to R35 600 per annum, and decile 7 to R104 600 per annum.

School uniforms are seen as a “merit item” although this makes up a relatively small portion of households’ consumption basket. However, by zero-rating this item, poorer households (decile 1 to 7) will receive Vat relief of R412 million.

The definition of a school uniform is problematic. Troost says a white shirt for an 18-year-old school boy can also serve as a business shirt for a working person – defying the purpose of the zero-rating. Discussions about the introduction of a standard uniform in all public schools may be the answer.

The panel considered a few alternative ways to mitigate the Vat increase, which include lower positive Vat rates on some items; increases in all monthly social grants, including the old age social pension; food vouchers – where cash grants might not be feasible or practical; upscaling the various feeding schemes; and the provision of free sanitary pads to girls and poor women.

Sait head of tax policy Erika de Villiers says the public consultation process is encouraging; it resulted in the independent panel being appointed and its terms of reference being extended.

“The report has taken public comments, economic analysis and policy considerations into account,” she says, adding that the call for public comment on the report provides an opportunity for the public to further influence the outcome and is welcomed.

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How the panel compiled this list to “help” the low/middle income earners and pensioners is beyond me. How is it possible the “they” think that exemption of VAT on airtime is more important than exemption of a protein: chicken. The list is a clear indication that the “panel” didn’t do their homework or was too “scared” to act in the interest of the consumers – we’re all barely surviving from month to month as of March 2018. The most basic of rights WATER AND ELECTRICITY should be exempted forthwith and the same for cooking oil, margarine, chicken, sugar [already collecting sugar tax], oats, etc., etc. The list is a clear indication that this Government is, as always, NOT acting in the interest of the low/middle income consumer.

100% correct all basic necessities should be exempt from VAT more important than exemptions is for the state to start infrastructure buildings so that more people can join the ranks of the employed thus more people paying tax thus making up for the losses of zero rated items
STOP this continuous legal battles latest example of Mr Mashaba/Gupta i he feels so strongly let him use his own money and for the time spent in consultation etc for this case his salary be docked for wasting the time of the ratepayers

I think that water and electricity should be taxed at 10%. Otherwise these entities will be abused. Water is precious.

NOTHING should be exempt from vat.

The socialist mindset goes on and on, destroying all in it’s path. More and more money and precious TIME wasted on robbing Peter to pay Paul. Kicking the can down the road.

It is this mindset that has got Europe, OK and also USA into the unsolvable mess that they are in.

There is and never will be a free lunch.

Exclude freebies and lower the basic rates as far as possible.

You are making a big mistake by trying to make sense of things South African. If you keep trying you are on your way to a nervous breakdown.

“The panel agreed that while white bread and white cake flour are not the most nutritional options to include, changing consumer behaviour to increase consumption of wholewheat bread is a long-term project (not necessarily focused only on the poor).”

This is the most retarded thing I’ve read all day… but hey, it’s only 9am! Have these idiots never heard the phrase: ‘health is wealth’. In a country where diabetes is one of the most common ailments, you’d think CAKE FLOUR would not make the list, and perhaps vegetables or, gee I don’t know, WHOLEWHEAT bread would. But clearly that’s a LONG-TERM project (which is going to be undertaken by WHO, exactly???) and therefore not worthy of our attention.

Brown bread and fresh fruit and vegetables have been on the list of zero-rated goods for years yet people still buy white bread. And what’s wrong with cake flour? Let them eat cake man!

“The panel agreed that while white bread and white cake flour are not the most nutritional options to include, changing consumer behaviour to increase consumption of wholewheat bread is a long-term project (not necessarily focused only on the poor).”

This is without a doubt the most retarded thing I’ve read all day… but hey, it’s only 9am! The best way to change behaviour is to make it MORE EXPENSIVE to buy the item that’s bad for you, not LESS EXPENSIVE. Good grief, in a country where diabetes is becoming more widespread every day, you’d think they’d consider that.

That’s exactly what the anc wants a bunch of zombie voters. That are uneducated, unhealthy and unconscious of what is going on around them.

Does any thing the politicians propose make sense?
1998 Upgrade and buy new military hardware when we are not at war?
2002 OBE drop the pass rate and use a system that has failed across the world to give people better education
2007 Drop corruption charges again the biggest known theif so that he can becom3 president followed by coincidently a decade lawless corruption and greed
2009 Denying the banks from prosecution because they are too big to fail
2011 Etolls (enough said)
2012 netball quota and points. For every player of colour your teams gets 1 point, a win is 3 points.
2014 procure a nuclear power plant whilst the country is in the worst drought seen in some 50 years, whilst no new infrastructure has taken plan
2018 make obese food Tax Free but encourage people be healthy.

I probably misses a couple of 100 items but the point is that after the $50billion in foreign cash reserved has been used S.A. will ask the IMF for a bailout.

Some information might be inaccurate (source date) but the facts are clear.

Is the sugar tax working?

Zero rating of additional items does not address the route cause of the matter – more of a vote catching exercise for the politicians.Corruption which costs the citizens via direct & indirect taxes billions of rands pa needs to be eliminated or significantly reduced.That way all taxes might even be reduced.We sure can hope.

Prescription medication is ma basic need. No VAT please….

It does NOT matter if it is a basic need.

It is the exclusion s that are the problem not the tax itself.

End of comments.





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