Cape Town – Finance Minister Enoch Godongwana has shot down a request to form a panel of experts to determine whether to increase the list of zero-rated food items.
This comes after the DA recently made the request and Godongwana undertook to do so when asked in the National Assembly two months ago.
The official opposition has been pushing for extended basket of food items to be zero-rated from VAT and subjected to expert analysis.
The DA proposed that items should include chicken, beef, tin beef, margarine, peanuts, baby food, tea, coffee and soup powder.
In September, Godongwana told the oral question session in the National Assembly that “if a proposal is ‘am I prepared to subject the items to an expert analysis, the answer will be yes’”.
This subsequently prompted DA MP Dion George to write to the minister asking whether he would convene a panel for such analysis.
However, Godongwana said he would not convene a panel for analysing an extended basket of food for zero-rating because this was done in 2018 by his predecessor, Tito Mboweni.
“The panel considered a total of 66 expenditure items from public submissions, and incidentally, it also considered the items in the list contained in the letter from Dr George, except for soup powder,” he said.
Godongwana said the panel’s main recommendations were that six items – white bread, white flour, cake flour, sanitary products, school uniforms and nappies – should be added to the list of zero-rated items, at a cost to the fiscus of about R4 billion per annum in lost revenue.
However, the government decided that two food items, white bread wheat flour and cake wheat flour as well as sanitary pads, be zero-rated from April 2019.
He said the VAT Act currently provided for the zero-rating of 21 basic food items.
The minister also said it was estimated that the basket of 21 food items was costing the fiscus about R31.72 billion in tax expenditure by 2019/20.
Godongwana noted that studies showed that VAT would be regressive in the absence of the zero-rated food items.
“The zero-rating of specific foodstuff provides a larger proportional benefit to the poor, but provides a larger absolute benefit to the rich (who consume larger quantities).
“The current basket of food items that are zero-rated are well targeted towards poor households.”
He also said the analysis of the panel had indicated that extending zero-rating to further food items would be inefficient since high-income households tend to benefit more from such measures.
Godongwana added that even though the economic conditions had changed since the panel’s report, the fundamental challenge remained that the VAT system was not an efficient and effective instrument to provide targeted relief to poor households.
“Given these constraints, the minister is not intending to convene another panel of independent experts to consider further zero-rating,” he said.
On Monday, George expressed dismay that Godongwana had made a U-turn on what he promised he would do during oral questions in the House.
George said he had sent the minister a follow-up question and his response was that he would not subject the basket to a panel of experts because this was done in 2018.
“Now a lot has changed since,” he said.
“I actually have written to ask whether he misled the House deliberately when he answered my question that he would do that and did not.
“The minister is not doing what he said he would do and he needs to explain why,” George said.