Will the latest VAT changes combat rising food costs?
Will the latest VAT changes combat rising food costs in South Africa or challenge fiscal sustainability? Here is what you should know.
As Pretoria grapples with rising food costs, the ANC has announced plans to expand the zero-rated VAT food basket to relieve vulnerable households.
During a recent media briefing, Mmamoloko Kubayi emphasized that this initiative is critical to making essential food items more affordable for low-income and middle-class families.
However, Deputy Finance Minister David Masondo raised concerns about the potential fiscal impact of this expansion, warning that it could lead to significant losses in VAT revenue, which is crucial in funding essential government services.
According to a report by Business Tech, Mmamoloko Kubayi, who heads the African National Congress (ANC) economic transformation subcommittee, announced the government’s plan to expand the zero-rated VAT food basket during a media briefing on October 26.
”Expanding the zero-rated VAT food basket is part of our bold step to alleviate inflation on basic food items, protecting both low-income and middle-class families. “These efforts are a testament to our commitment to making essentials affordable and accessible,” she said.
The report furthermore states that President Cyril Ramaphosa highlighted similar concerns in his July 2024 Opening of Parliament Address, promising that the government would seek ways to lower the costs of basic necessities for South Africans.
However, Deputy Finance Minister David Masondo raised concerns over the feasibility of further expanding the zero-rated list.
The report said Masondo explained that, from an economic standpoint, it might be more effective to allocate funds to existing pro-poor government programs rather than increasing the number of VAT-exempt items.
He estimated that the government loses over R30 billion annually due to the current VAT exemptions on the 19 essential items, which complicates the matter.
As VAT is the government’s second-largest revenue source after personal income tax, comprising 26% of total tax revenue, further reductions would have significant fiscal implications.
Also read: Motorists brace for price surge at the pump next week
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