David Masondo, deputy minister of finance, said exemption from VAT will not be extended to more food items as this will lead to lower tax revenues and means there is less money for more targeted poverty alleviation.
During Thursday’s DA-motivated debate in the National Assembly on the expansion of a food basket that is excluded from VAT, Masondo said the government knows that South Africans are experiencing challenges in the difficult economic climate. However, he is of the opinion that even more VAT-free food items are not the best solution to the problem of high living costs.
The deputy minister pointed out that VAT-free food items resulted in a revenue loss of R31 billion in the 2019-20 financial year. “Exempting more items from VAT will lead to a decrease in income that could be used to support the poor,” Masondo said, adding that the tax income thus lost mainly benefits middle and high income households, which according to buy him more of these products.
Masondo says that VAT accounts for an average of 26% of gross tax revenue, which is redistributed to the poor via a number of pro-poor government programmes. He also noted that the government spends more than 60% of its budget on the social wage, which is largely targeted at the poor.
Brown bread, cornmeal, rice, vegetables, milk, vegetable oils and eggs are some of the VAT-free food items, but the DA wants chicken on the bone, beef, tinned beans, whole wheat flour, margarine, peanut butter, baby food, tea, coffee and soup powder to be also be included in this.
Dion George, DA MP and spokesperson on finances, said struggling South African households are suffering from the government’s poor policy choices.
“By taxing fuel, the price of petrol rises and it increases transport costs which in turn drives up food prices and then more and more South African households cannot put enough food on their tables. The government can reduce the taxes and charges on fuel which currently make up 33% of the fuel price. It will immediately reduce the cost of fuel, the cost of transport and the cost of food.”
The IVP and FF Plus supported an expansion of the VAT-free food basket.
Wouter Wessels, FF Plus MP and spokesperson on finances, said the ANC is now speaking from different mouths about the expansion of a food basket that is excluded from VAT and clearly does not care about the hardships of the country’s people.
“South Africans are suffering a lot. The poor are getting poorer and the widespread unemployment rate is over 40%. Almost half of South Africans are unemployed. It is estimated that by 2025 – in less than two years – 50% of South Africans will not know where their next plate of food will come from.
“For the current crisis, immediate short-term solutions are needed to help those in need and to stimulate economic growth at the same time. The deputy minister’s argument that middle and higher income groups will benefit the most from VAT concessions on basic food products is thoughtless. It would precisely as part of the overall value chain stimulate spending and economic growth that would be beneficial for everyone.”
Under the ANC government, tax revenue is in any case largely misused, Wessels believes. “The government doesn’t really care about the needy.”