Cape Town – Treasury plans to take a collaborative approach in the consideration of goods to be added to the list of items zero-rated on value-added tax (VAT), Parliament heard.
National Treasury on Friday responded to the public inputs of Budget 2018 at Parliament. Treasury deputy director general on tax and financial sector policy Ismail Momoniat spoke on the potential of reviewing the list of zero-rated items.
Over the past week since Budget 2018, civil society groups and unions have criticised the increase in the VAT rate for adding to the burdens of the poor. Among the suggestions by these bodies include expanding the list. Cabinet on Thursday also issued a statement indicating it is considering expanding the list of basic goods zero-rated on VAT.
According to Treasury’s budget review document, there are 19 basic food items on the zero-rated list. This includes dried beans, samp, maize meal, rice, milk, tinned pilchards, brown bread, eggs and vegetables, as well as illuminated paraffin.
In its submission, Treasury highlighted findings from the Davis Tax Committee in 2015 that advised that no more zero-rated food items should be considered.
In its explanation, Treasury stated that higher income households benefit more from zero-rating, when the policy is actually intended for poor households.
“Increasing the list of zero-rated food items will further erode the VAT base and reduce the revenue potential of the VAT increase.”
However, Momoniat told the standing committee on finance that Treasury is open to reviewing the current list of zero-rated products due to concerns which have been raised over the VAT increase. Treasury is not working with one exact mechanism and is considering asking the Davis Tax Committee to get a panel of experts to provide a report.
The panel would also look into the effectiveness of expenditure programmes such as school feeding schemes,
which are meant to alleviate the pressure on the poor.
Momoniat said at the Cabinet meeting it was suggested that an inter-ministerial committee be established. He added that another option is for academics to do comparisons of food baskets of poor households in the past 20 years.
“The Treasury itself will be meeting with agencies, and do our own research,” said Momoniat. Public hearings are expected to be held in the middle of the year and thereafter feedback will be given to ministerial committees.
Cosatu’s parliamentary coordinator Matthew Parks, who was also at the hearing, expressed views that Parliament cancel the VAT rate or expand the list of zero-rated items to include essentials such as sanitary pads, toiletries, school uniforms and textbooks. He said that consulting with experts and reaching a solution for 2019 would be too late.
UPDATE: This article has been updated to show that in addition to reviewing the list of zero-rated items, the effectiveness of expenditure programmes for the poor will also be considered.
* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER