Cabinet to consider more zero-rated goods after VAT hike

2018-03-01 18:33 - Lameez Omarjee
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Cape Town - Cabinet is considering expanding the list of zero-rated goods, following concerns raised over the increase in the VAT rate.

This is according to a statement issued by Cabinet following a meeting at Tuynhuys. The National Budget was one of the matters discussed at the meeting.

Cabinet said in the statement that it was of the view that the budget would support the poor in society through a “comprehensive social assistance programme” and the fee-free tertiary education for students from poor households.

During his budget speech last week former finance minister Malusi Gigaba announced that the VAT rate would be increased by one percenatge point from 14% to 15%. 

Gigaba said that social grant increases would be above inflation to soften the blow of a higher VAT rate on poorer households. However, unions and civil bodies have criticised the rate increase as an extra burden for the poor.

The Congress of South African Trade Unions (Costau) and civil society groups Equal Education, Section 27 and the Institute of Economic Justice on Wednesday made submissions at the public hearings on Budget 2018 held at Parliament.

Cosatu called for Parliament to cancel the VAT hike, while the civil society groups called for Treasury to expand the zero-rating category. The category should have emphasis on items commonly used by low-income groups, with particular attention to the needs of women and children, Fin24 reported.

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 the budget review Treasury said products such as rye or low GI bread, which are much more expensive and mostly consumed by richer households, will not be zero-rated.

No luxury VAT

“While government has explored implementing a luxury VAT to make the tax more progressive, this option is not being proposed,” Treasury said in the review.

“Reducing inequality is crucially important, but the VAT system is not the best instrument for achieving redistributive goals.”

In an emailed response to a query from Fin24, Treasury said it would still engage further on the matter before the outcomes will be communicated. 

Treasury will provide its responses to the public’s submissions on the budget at Parliament on Friday.

Path of fiscal consolidation

Apart from addressing concerns of the VAT rate, Cabinet also said that the decision to reduce government expenditure by R85bn over the next three years demonstrates commitment to fiscal consolidation.

“The steps announced to slow the pace of debt accumulation and contain the budget deficit greatly improve our fiscal framework and give South Africans confidence in the future prospects of our economy,” the statement read.

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