ZERO-RATED? Cake and bread flour may become zero-rated for VAT. Picture: REUTERS/IVAN ALVARADO
ZERO-RATED? Cake and bread flour may become zero-rated for VAT. Picture: REUTERS/IVAN ALVARADO

The independent panel appointed to review the current list of zero-rated food items for VAT purposes has recommended additional items, including sanitary products, school uniforms, and nappies for babies and adults.

Also recommended for zero-rating, in addition to the 19 food items already zero-rated, are white bread, bread flour and cake flour.

The panel’s report was released on Friday by Finance Minister Nhlanhla Nene for public comment. The period for comment will close on August 31.

In response to mounting pressure after the VAT increase, Nene appointed the panel, chaired by Prof Ingrid Woolard, an economics professor at the University of Stellenbosch, to look into zero-rating additional items to mitigate the effect on the poor of the one percentage point increase in the VAT rate from 14% to 15%, which was announced in the budget and which took effect from April 1.

The VAT increase was strongly opposed by trade unionists, NGOs and community organisations as being a regressive measure that would have a negative impact on the poor.

The panel was mandated to evaluate the current list of zero-rated food items; consider the inclusion of additional zero-rated items; and consider other measures, such as expenditure programmes, to mitigate the impact of the VAT hike on poorer households.

The Treasury said the panel had recommended that government "expedite the provision of free sanitary products to the poor and that the zero-rating of school uniforms be done only if they can be separated from general clothing". For each of the recommended items, the panel suggests that the National Treasury does further work to "ensure the benefits of zero-rating accrue to consumers and are not captured by producers".

The report also highlights some programmes on the expenditure side that would assist poorer households, such as strengthening the national school nutrition programme and increasing the child support grant and old age pension.

The minister will decide which of the panel’s recommendations to accept after considering public comments and after parliamentary hearings by parliament’s finance committee. The Treasury noted that some of the changes might still be included in the draft tax legislation currently being processed by the finance committee.

The Treasury was particularly interested in getting comments on whether the panel’s recommendations would significantly benefit poor households, or whether such benefit can best be achieved through other means, such as government expenditure programmes.