Deputy finance minister David Masondo says expanding the basket of zero-rated foods will result in lower tax revenue and mean there are less funds for more targeted relief for the poor.
The deputy minister was speaking during a DA-motivated debate in a mini-plenary of the National Assembly on Thursday on “desperately needed relief measures”, including expanding the VAT zero-rated food basket. The government has been urged to take the step immediately to alleviate the cost-of-living crisis.
Masondo rejected an expansion of the food basket, echoing the view expressed in October by finance minister Enoch Godongwana that this would benefit high-income earners more than the poor. The minister insisted that the Treasury will not change its position in this regard.
However, parliament’s standing committee on finance — including ANC MPs — earlier this week recommended that the basket of zero-rated foods be expanded to relieve households in distress. ANC MP Maidi Mabiletsa said in her speech during the debate that the ANC supports the expansion of zero-rated foods but stressed that this needs to undergo a financial analysis to evaluate its implications. It is not something that can be implemented immediately.
At present, food items that do not attract VAT include brown bread, maize meal, rice, vegetables, milk, vegetable oils and eggs. DA finance spokesperson Dion George, who proposed the debate, wants the basket to include bone-in chicken, beef, tinned beans, wheat flour, margarine, peanut butter, baby food, tea, coffee and soup powder. The IFP and Freedom Front Plus supported an expansion of the zero-rated food basket.
In his speech, Masondo said the government does not think expanding the basket of zero-rated food is the right solution to address the high cost of living. Targeted cash transfers to the poor and targeted expenditure interventions are better and more redistributive than zero-rating food items, which mostly benefits high-income households.
He mentioned that the education and health budgets are progressive, there is an extensive system of social grants, and the R350 social relief of distress (SRD) grant also assists the poor.
Other tax measures have been introduced to help alleviate the cost-of-living crisis, such as 2022’s temporary R10bn reduction in the general fuel levy, which had also not been increased in the past two years.
In the 2019/20 fiscal year, zero-rating food items represented a loss in VAT revenue to the state of about R31bn, the deputy minister said. “Further zero rating will lead to a decline in revenue which could be used to support the poor,” Masondo said, noting that the tax revenue lost through zero-rated food items mainly benefits middle- and high-income households, which purchase more of these products.
Masondo pointed out that VAT constitutes 26%, on average, of gross tax revenue, which is redistributed to the poor via a number of pro-poor government programmes. He noted that the government spends more than 60% of its budget on the social wage, which is largely directed to the poor.
In addition to this, the government has already VAT zero-rated a number of basic food items as well as illuminating paraffin. The problem, he said, is that suppliers often do not pass on the VAT relief to consumers.
In his speech George said the government could cut the taxes and levies on fuel, which make up 33% of the fuel price. This would immediately lower the cost of fuel, transport and food. The government could also increase the child grant to the poverty line and should clarify the future of the SRD grant.
George stated that 81% of households skip at least one meal a day; 12-million people go to bed hungry every night; 30% of children under the age of five are stunted in their development and millions of hungry schoolchildren are unable to concentrate and learn.
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