President Cyril Ramaphosa has thrown his weight behind a proposal to expand the basket of goods exempt from VAT, a move aimed at addressing the lingering economic hardships faced by South Africans.
“Among the measures to ensure that all South Africans have affordable access to sufficient food, the government is looking at whether the basket of food items that is exempted from VAT could be expanded to include more basic products,” Ramaphosa said during his annual address to the National Council of Provinces.
The idea has been on the table since at least 2018 when an independent panel of experts was tasked with advising then-finance minister Nhlanhla Nene on extending zero rating.
They recommended that six additional items should be exempted from VAT.
But it has gained more attention after the Covid-19 pandemic tossed millions of South Africans into poverty.
It has the potential to polarise economists and policymakers, with some likely to see it unaffordable given SA’s fiscal constraints and debt levels. The Treasury collects about R400bn annually from VAT receipts.
Social discontent
Its cheerleaders are likely to deem it an essential step to help reduce poverty and inequality, which are some of the root causes of social discontent and frustrations that some business leaders have warned could boil over into political unrest.
The government of national unity (GNU), a coalition of 10 political parties, faces the daunting task of balancing these fiscal pressures against the urgent need to improve living conditions. The ANC’s loss of majority in the May general elections has heightened the stakes, as it may use this to win back confidence in the electorate.
“Food is among the most basic of human needs,” Ramaphosa told the National Council of Provinces.
“Yet nearly a quarter of households consider their access to food as inadequate or severely inadequate. While the steep rise in food inflation since the Covid-19 pandemic has eased over the last few months, consumers are yet to feel the effects in their pockets.”
He emphasised the importance of expanding agricultural output, saying it required more effective land redistribution and providing necessary support to beneficiaries to work the land.
The DA responded to Ramaphosa, taking a firm stance against the ANC’s sole stewardship of the economy until recently.
“Under the ANC, promises of a better life for all have turned into a bitter pill for South Africans to swallow. Poverty remains entrenched and the rising cost of living is choking millions of households,” DA MP Sonja Boshoff said.
“If we are to chart a path forward, we must break free of the failures of the past ... this can be realised by co-operation from the ANC and DA under the |newly established GNU.”
The MK party, led by Ramaphosa’s predecessor, Jacob Zuma, did not respond positively to the president’s remarks, saying he should shoulder some of the responsibility for SA’s economic stagnation.
“People are no longer falling for your well-crafted speeches that promise the world and deliver nothing.
“While you are here (talking), people are not doing well out there, if you want to tackle poverty, you have to do more,” MK MP Mmabatho Mokoena said.
“Mr President, your administration has presided over an unprecedented economic stagnation, institutional decay and a rise in despair,” Mokoena said.
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