Treasury VAT committee baulks at costly zero-rating of chicken

CAPE TOWN — As the ruling party tries to balance investment and job creation with populist redistribution of wealth, the former more urgent if it wants to return stronger from the polls, the Treasury is getting set to potentially shed R2.8 billion from the State coffers to provide tax relief for the poor. By singling out six utilitarian products most poor people use and excluding them from VAT, as recommended by a panel of experts late last week, the Treasury would be providing significant relief to our growing jobless army. When you look at the list of items, it’s obvious some considerable thought has gone into their selection. However, when you balance the intensity of effort going into wealth redistribution versus job creation and investment efforts, you can’t help wondering whether this is ultimately like trying to patch an increasingly leaky bucket. The advisory committee baulked at what would have been a seriously impactful move; Zero-rating chicken was just too damned expensive. – Chris Bateman

By Rene Vollgraaff

(Bloomberg) – 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, bread 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 percent – 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 Oct. 24.