VAT FREE Chicken

VAT exemption on foods may not benefit poor

Cape Town – As the impact of the drought, fuel and sugar taxes is being felt on food prices, there is concern about whether the proposed VAT exemption on certain food products will benefit the poor.
The government raised VAT from 14% to 15% on April 1 as part of its attempts to raise additional revenue of R22.9 billion, raising concerns of an impact on poor and low-income households.

The National Agricultural Marketing Council’s (NAMC’s) Christo Joubert said since the introduction of the VAT increase consumers were paying R40 more on a basket of 28 basic food items including maize meal, milk, eggs, baked and dried beans.

Joubert said more items needed to be zero-rated and he called for frozen chicken and eggs to be added to the list.

“If one looks at the expenditure patterns of the poor, their protein source is frozen chicken as they have now moved away from polony as a result of the listeriosis outbreak. Meat coupled with vegetables will add to a healthy lifestyle,” Joubert said.

The VAT system allows for 19 basic food items to be zero-rated to provide relief to low-income households.

But government moves are under way to extend the zero-rated products to cover sanitary products, school uniforms and disposable nappies.

A panel set up to investigate the possibilities of how the impact of rising food prices could be mitigated for the poor while ensuring the government still reached its objective of raising additional revenue from taxes, has finally settled on a list of six items that will be tabled before Parliament soon.

The list excludes items that were recommended during the submissions such as poultry and baby formula.

Among the factors considered in narrowing the list down to six items were the need to address women-specific issues, the needs of older people and those living with disabilities as well as children.

The need for mothers to breast feed their babies for health benefits also played a part in the baby formula being omitted from the final list.

Tax expert Tertius Troost said the biggest concern was that the benefits of zero rating should not be absorbed by producers or retailers but passed on to consumers.

“The consumer might not even be aware that the product is now zero-rated and might pay more instead of less,” he said.

It is left to the Competitions Commission to monitor possible price-fixing issues that might arise and failure to pass on the tax benefit.

Troos said the Competitions Commission might not have the capacity to deal with such issues and the matter would now be left to consumers to educate themselves and to ensure that they enjoyed the tax benefit.

“But I am happy that they added sanitary products to the list as it will benefit women in general. This is a step in the right direction,” he added.

Troos said the addition of chicken to the recommended list would have resulted in a R3 billion revenue loss to the government.

There are only two large players in the poultry sector. The Bureau for Food And Agricultural Policy said high food prices had been building up since the 2015/16 drought and a longer term effect of this would be on meat prices, specifically red meat.

Dr Marlene Louw, consumer and food price specialist at the Bureau for Food and Agricultural Policy, said other factors that had contributed to the high food prices were the rise in the fuel levy, sugar tax and currency pressures.

“Recent inflation figures have shown meat as the main category that was driving aggregate food inflation. Bread and cereals and fruits actually had disinflation over the last few months. This is however expected to be reversed in the coming months,” Dr Louw said.

Weekend Argus