South Africa zero-rating Vat plan could cost state R4bn

A South African panel has recommended six more consumer items be added to a list of goods that won’t incur value-added tax, which could potentially cost the state R4 billion ($283 million).

White bread, white flour, cake flour, sanitary products, school uniforms and diapers should all be zero-rated, according to a report by a panel of experts released by the National Treasury Friday. That would provide tax relief of R2.8 billion for the poorest households, they said.

In February Former Finance Minister Malusi Gigaba announced a one percentage-point increase in the VAT rate to 15% — the first advance in 25 years — to try to help plug a revenue shortfall of almost R50 billion. The National Treasury asked the panel to review the list to alleviate the effect of higher taxes on the poor.

Currently 19 food items including brown bread and eggs carry no Vat, while paraffin also doesn’t incur the tax. Zero-rating chicken, an important source of animal protein for many South Africans, would have cost R2.1 billion in foregone revenue, the panel said.

The recommendations will now be subject to public comment, the National Treasury said.

Vat is the second-biggest source of government income in South Africa. Finance Minister Nhlanhla Nene is scheduled to present the mid-term budget to lawmakers on October 24.