7 things Treasury, Parliament must consider as they expand the list of zero-VAT items

Sep 13, 2018
The poor are carrying the burden of State Capture through the VAT increase, a Parliamentary committee has heard.
 
This is just one of the criticisms raised by several organisations and industry representatives before Parliament’s Standing Committee on Finance at a hearing on the VAT panel report on Wednesday.
 
The report, published in August, is the work of an independent panel that reviewed the current list of items exempted from VAT and proposed new items to be zero-rated. The panel was constituted after then Finance Minister Malusi Gigaba announced in February that the VAT rate was to increase by one percentage point from 14% to 15% to raise an additional R22.9bn. 
 
1. The poor are paying for State Capture
 
Neil Coleman, who represented the Institute for Economic Justice, said that SA has to try to find ways to plug revenue shortfalls as tax collection has lagged. This problem has further been exacerbated by State Capture, which has reduced revenue to the fiscus.
 
“It should not result in punishment of the poor. We had nothing to do with that failure,” he said. The SA Revenue Service has experienced two successive years of tax shortfalls: R30bn in 2016/17 and R49bn in 2017/2018. 
 
Similarly, trade union federation Cosatu believes the one percentage point VAT hike punishes the poor for the “sins of the rich”. The federation insisted that government has other options to address revenue shortfalls. It wants the state to “stamp out corruption” and set out how it will recover stolen funds.
 
2. Unlikely VAT hike will be rescinded during the mini-budget
 
The Budget Justice Coalition was among the organisations calling for the VAT hike to be rescinded. But committee chair Yunus Carrim pointed out that the mini budget, set to be delivered on October 24, has already been set and it is unlikely that any decisions would be implemented then.
 
Cosatu proposed that government purchase and distribute sanitary pads to clinics, hospitals, no-fees schools and tertiary institutions.
 
“Government has done it with feeding schemes and condoms. Girls should not be disadvantaged because of a normal cycle of life,” said Cosatu’s Parliamentary coordinator Matthew Parks.
 
The Budget Justice Coalition also proposed that government invest in providing sanitary products to poor women and girls – as this will ensure that they will directly benefit from the zero-VAT status, while richer households can continue to buy the sanitary pads. Sanitary pads were one of the items that the VAT panel proposed be zero-rated. 
 
4. More protein needed on the zero-VAT list
 
The Budget Justice Coalition, which represents several other organisations, raised concerns over the lack of protein on the zero-VAT list, a concern as malnutrition and protein deficiency leads to stunting and anemia. It suggested peanut butter and soya mince be included on the list.
 
The South African Poultry Association pointed out that chicken accounts for 13% of food expenditure for lower-income households, and supported the inclusion of whole fresh or frozen chicken products and portions. 
 
5. VAT hike simply unaffordable for the poor
 
The Pietermaritzburg Economic Justice and Dignity Group collected data on the impact of the VAT hike by tracking a basket of 38 foods, 20 of which are subject to 15% VAT, the committee heard.
 
In August 2018, the total cost of the basket was R3 009. Foods subject to VAT accounted for 55% of the basket - or R1 654. The VAT on the foods amounted to R215, or 7.2% of the entire basket, said the group's Mervyn Abrahams. This equal to the price of a 35kg of maize meal which poor and working-class households buy each month.
 
Taking into account the recommendations of the VAT panel, the savings on the food basket for August 2018 would equal R40.81, bringing the total cost of the basket to R2 968. Abrahams said this was roughly equivalent to the median wage of a black South African worker, which is R3 000.
 
“That is just food alone - therein lies the problem,” he said. SA households are not getting sufficient income, and that the problem is not just simply a question of zero-rated items, he said. 
 
6. Food choices must be expanded
 
Geoff Penny of the Baking Association of South Africa weighed in on making white bread zero-rated. He said this decision would enable poor consumers to choose the product they prefer.
 
Poor consumers should be given the opportunity to shop with dignity, the baking association’s submission read.
 
Similarly, Dr Ziyanda Majokweni of the Broiler Organisation argued that whole chickens should not be subject to VAT - as opposed to just having portions like chicken feet and gizzards zero-rated. This would give consumers more choice, she told the committee. 
 
7. Double take on current list
 
Lionel Adendorf of FairPlay criticised the fact that the current list 19 zero-rated items was not reviewed. If there were a thorough review of the list the panel would have taken some items off the list, and would have included new household items which are being used by these poorer households, he argued.
 
The PwC’s VAT Partner Lesley O’Conell also echoed views that the current list should be reconsidered to include ones that are consumed by the poor.
 
The committee's chairperson Yunus Carrim called for Treasury to interrogate the submissions more seriously than they had previously.
 
 
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