Calls to exempt more food items from VAT in South Africa – Godongwana responds

Considering the rising cost of living in South Africa throughout 2023, some political parties have called to expand the zero-VAT-rated basket of food items in the country, but Minister of Finance Enoch Godongwana said this would do little to help those who need it.

Currently, there are several food items that are zero-VAT-rated, including brown bread, maize meal, rice, vegetables, milk, vegetable oil, eggs and more.

In a recent parliamentary Q&A, Godongwana was asked whether he would consider expanding the zero-VAT-rated food basket in South Africa as a direct intervention to fight the cost-of-living crisis that is notable by the upward-spiralling high food prices that are squeezing the average South African household.

In response, Godongwana noted that while poorer households consume more zero-rated food items, studies have shown that affluent families benefit more from such an intervention.

“My position has not changed since the last oral reply. As indicated then, zero-rating of specific foodstuffs provides a larger proportional benefit to the poor,” said Godongwana.

“Overall, goods have a progressive impact and a strong equity-gain ratio – poor people consume a relatively high share of zero-rated items.

“However, the analysis of the independent panel in 2018 indicated that extending zero-rating to further food items would be inefficient since high-income households tend to benefit more from such measures,” he added.

Food prices pinch

The call to expand the country’s zero-VAT-rated basket of food items comes as many South Africans feel the pinch of food prices that have risen significantly over the past year.

The latest Household Affordability Index by the Pietermaritzburg Economic Justice & Dignity group (PMBEJD) shows that food prices in September 2023 are about 7.3% more costly than in 2022.

The group tracks a basket of 44 commonly-bought food items totalling R5,155.77 in September 2023, around R349.91 more expensive than the same basket in 2022.

Additionally, the PMBEJD data showed that zero-rating products are still seeing notable increases despite being exempt from Value-added tax.

According to the PMBEJD, the zero-rated foods in the household food basket increased by R250.56 (10,0%) from R2,506.85 in September 2022 to R2,757.41 in September 2023.

At the current costs, PMBEJD further showed that, for a family of four living on the national minimum wage (R4,067.20 per month), the minimum shortfall on food for a family is 51.6% in September 2023 – meaning after transport and electricity costs, only R1,720.28 would be left for food.

This shows that poorer households would benefit very little from an extension of the zero-VAT-rated food basket, as they can’t even afford the basic increases in prices – which means, as stated by Godongwana, only the affluent households would stand to benefit meaningfully.

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