A one percentage point VAT hike over the next two years will eat into social grants that poor households depend on, say economic justice groups, warning that even the expansion of the zero-rated basket to include more goods — as announced in the budget on Wednesday — is not good news for those reliant on social welfare.
At the same time, a trade expert has cautioned that administering VAT exemptions is difficult.
Tabling his budget, finance minister Enoch Godongwana said the basket of VAT zero-rated foods was being expanded to include canned vegetables, dairy liquid blends and organ meats from sheep, poultry, and other animals.”
In the budget review, the National Treasury acknowledged, however, that zero-rating was a “blunt tool” to assist lower-income households because there was no guarantee that there would be a reduction in prices. It said that if not well-targeted, zero-rating could end up benefiting higher-income households.
Independent trade compliance adviser Leon Marais told Business Times that VAT exemptions were not workable and very difficult to implement.
“VAT on imports is inflated. On imports from non-SACU [Southern African Customs Union] countries that customs value is uplifted by 10% ... The impact is that the VAT rate on imports is at least 16.5%, and that VAT is also paid on customs duty,” he said.
“For example, on meat, which is subject to a rate of 40%, the 15% VAT rate could be 22.5%. At a rate of 15.5%, the import VAT rate on products with a customs duty rate of 40% would be 23.5%.”
Francois Baird, founder of poultry industry lobby group FairPlay Movement, said the proposed VAT increase would have a devastating impact on poorer households if chicken was not included in the basket of zero-rated goods.
“Chicken ... makes up 66% of all meat consumed and is the primary source of meat protein for low-income households. Chicken contains the vitamins and minerals to help reduce the horrifying statistic that nearly 30% of South African children are stunted — the result of chronic malnutrition that affects them mentally and physically for the rest of their lives.”
He said millions of South Africans desperately need cheaper, nutritious food to improve their diets as Stats SA has reported a “food insecurity crisis”, with more South Africans experiencing higher levels of food insecurity.
Baird said the government must remove VAT from frozen chicken portions and chicken offal products such as heads, feet, gizzards, and livers.
The budget proposes spending R422.3bn on social development, including R117.4bn on the old-age grant, R90.4bn on the child support grant and R77bn on other grants.
We are now presented with the worst of both worlds. VAT is still increased, while funding for the SRD grant is frozen at R370 per month
— Institute for Economic Justice
The Institute for Economic Justice said in a statement that despite the zero-rating of certain food items, social grant increases would not cushion the poor as the VAT hike would eat into grants that have not adequately outpaced inflation.
“We are now presented with the worst of both worlds. VAT is still increased, while funding for the SRD (social relief of distress) grant is frozen at R370 per month in 2025 and is not provided for from 2026. A double gut-punch to food-insecure households. Other social grants receive marginal above-inflation increases which, while a step in the right direction, in no way address the erosion of their value over successive budgets.”
The Pietermaritzburg-based Economic Justice and Dignity Group said that with the impact of the proposed VAT hikes, there would be no real increase in the value of the social grants.
“Foods subject to VAT make up 47% of the total cost of the household food basket in February 2025. Zero-rated food items cost R2,829.12 and foods subject to VAT cost R2,484.10. The total household food basket is R5,313.22. VAT on the total household food basket came to R324.01 in February 2025. This means 6.1% of the household food basket is made up of VAT.”
The NGO Oxfam said in a statement it was concerned that the 0.5 percentage point VAT increase disproportionately impacted lower-income households, particularly working-class women who have to provide for their families.
“While the expansion of zero-rated items is noted, it is insufficient to shield these households from the adverse effects of this increase. Additionally, the failure to raise social grants further entrenches economic hardship, leaving millions without the support they desperately need.”
It urged the government to consider targeted taxation of the wealthy and allow for greater investment in social, security, health, and education.
“This refusal to tax the super-rich reinforces the economic divide and highlights the government’s failure to take decisive action against inequality,” said Nkateko Chauke, acting executive director of Oxfam South Africa.
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