Home / Nation Alert / South Africa Zero-Rating VAT Plan Could Cost State $283 Million

South Africa Zero-Rating VAT Plan Could Cost State $283 Million

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 4 billion rand ($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 2.8 billion rand 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 50 billion rand. The National Treasury asked the panel to review the list to alleviate the effect of higher taxes on the poor.

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The VAT increase announced in February was going to add the bulk of South Africa's extra tax revenue this year

Source: National Treasury

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 2.1 billion rand 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 MinisterNhlanhla Nene is scheduled to present the mid-term budget to lawmakers on Oct. 24.

— With assistance by Ntando Thukwana

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