6 items recommended for zero VAT rating

NATIONAL NEWS - Ever since The Value-Added Tax (VAT) rate was increased from 14% to 15% in April this year, there have been many concerns about its impact on poor and low-income households.

The increase in VAT would raise the tax on the poorest 50% of households by around R1.8 billion or an average of R216 per household per annum.

This has prompted public hearings to be held where people could recommend up to 19 items that would get a zero VAT rating and therefore not affect their prices. The Standing Committee on Finance and the Select Committee on Finance, Cabinet, the Minister of Finance through the Davis Tax Committee, appointed a panel of independent experts to consider and review the list of zero-rated food items.

The Panel assessed its proposals in terms of their projected effects on five main outcomes:

The overall tax system must remain as progressive as possible.
The extent to which VAT could become more progressive.
Zero rating should incentivize merit goods and address the special needs of women, older people, those living with disabilities and children if possible.
The cost of zero rating to the fiscus should not be excessively high.
The benefits of zero rating should not be absorbed by producers or retailers.

Basic items to be taxed at a zero percent rate
In terms of section 11(1)(j) of the VAT Act, 1991, the current VAT system allows for 19 basic food items to be taxed at a rate of zero percent.

This was introduced as a means of providing some relief to low-income households which spend a relatively high proportion of their income on the zero-rated items.

Based on public submissions (excluding duplications) a total of 66 expenditure items were considered and the Panel identified these expenditure items for further consideration:

Further Recommendations:
In addition to these recommendations, the Panel provides possibilities on alternative ways to mitigate the VAT increase, including;