Does zero-VAT rating of food items help those needing money most?

Judge Dennis Davis was addressing Parliament’s Standing Committee on Finance, which Wednesday held hearings on the VAT rate hike from 14 to 15% that came into effect this month.

Picture: EWN

CAPE TOWN - Judge Dennis Davis says the zero-VAT rating of 19 food items costs the government around R23 billion a year in lost revenue but he says that the rich benefit more from this than poor people.

Davis was addressing Parliament’s Standing Committee on Finance, which on Wednesday held hearings on the VAT rate hike from 14 to 15% that came into effect this month.

Unions and civil society organisations have slammed the increase, saying poor people will suffer the most.
The independent panel on VAT will be considering, among other things, whether the zero-rated list should be expanded to include more foods as well as other commodities.

But Davis is questioning whether zero-rating really helps those who need the money most.

Judge Davis says the independent panel on VAT must discuss ways to make sure that poor people get the full benefit of the R23 billion in lost revenue caused by zero-rating 19 food items.

“In 2015 the cost of zero-rating the 19 food items was about R23 billion. If you work it out that R23 billion goes mainly to wealthy people because we all buy the same foods. So the question is, is the most efficient way of getting R23 billion to poor people through zero-rating or through some other system and I think we should talk about it.”

Davis says the VAT hike was “regrettable”, but that the government had to urgently raise the billions needed to cover the revenue shortfall and implementing fee-free tertiary education.

He says it was the only option that would cause the least damage to the economy but stressed it won’t be an option available to the government next year.