South African food producers, including the poultry industry, have argued for additional essential food items to be exempt from 15% value added tax (VAT).
Two draft budget proposals this year would have raised the VAT rate, and expanded the VAT-free list to lessen the blow to low-income households. Parliament is now discussing a third draft, with no VAT increase but no expansion of the VAT-free food basket.
The exclusion of additional foods was a mistake, the food producers told a parliamentary hearing last week. Poor people are struggling, they argued, and targeted interventions are needed even though the VAT rate remains unchanged.
Frozen chicken and fresh and frozen chicken offal should be zero-rated, said the SA Poultry Association (SAPA) and meat importers represented by the Association of Meat Importers and Exporters (AMIE).
Poor and low-income households rely heavily on chicken as an affordable and healthy source of protein, submitted SAPA’s Izaak Breitenbach on behalf of both organisations.
“Chicken is a high-protein, nutrient-dense food. It is significantly richer in protein than any of the items currently included in the zero-rated basket,” he told parliament’s standing committee on finance.
The Consumer Goods Council argued that expanding the list of zero-rated food products would enable poorer households to afford more healthy and nutritious food. Leaving the VAT rate unchanged did not reduce the burdens on financially vulnerable households, argued the council’s Neo Momodu.
She pointed out that the government had earlier intended to add a number of essential foods to the VAT-free basket. This included canned beans and peas, dairy liquid blends and certain organ meats (offal) from sheep, pigs, goats and poultry.
Zero-rating these additional products would have gone a long way not only to cushion consumers but also to improve healthy eating and healthy lifestyles, and improve food security, she said.
Ways should be found to ease the “untenable financial strain” that South African consumers, particularly lower income households, were facing, she concluded.
Clover – a major dairy producer that has expanded into the broader foods sector – argued for the zero-rating of dairy liquid blends, Moneyweb reported.
“These drinks have been designed to assist poorer families and making it tax exempt will be a tangible and immediate relief for families affected by the cost of living,” the group said in a statement to the committee.
Moneyweb said the National Treasury’s response to the submissions was that zero rating was a blunt tool to assist lower-income households, compared to targeted expenditure.
There was no guarantee that there would be a reduction in prices and “it is also a subsidy to all consumers,” the Treasury contended.
