VAT panel given time

This may alter the fiscal framework from next year onwards.

National Treasury has given the independent panel tasked to review the current list of VAT zero-rated items an additional month to complete its work amid concerns that the tight deadlines may not allow it enough time to do a proper analysis.

It has also broadened the panel’s terms of reference, allowing it more flexibility to make proposals that may alter the fiscal framework for the 2019-20 financial year, which could put additional pressure on the weak state of South Africa’s finances, requiring careful management. Its previous terms of reference required it to stay within the confines of the current fiscal framework as proposed in the 2018 budget.

Des Kruger, a consultant in the tax practice at law firm Webber Wentzel says if the panel makes proposals that are not tax neutral, there could be further tax implications down the road that would have to be funded some way or other.

The panel, chaired by economics professor Ingrid Woolard, was appointed after the VAT rate was increased from 14% to 15% on April 1. The hike – a politically unpopular move – was an effort of last resort to steady the country’s weak fiscal ship.

Woolard’s team has to evaluate the current list of 19 zero-rated items, which includes brown bread, eggs, milk, fruit, vegetables and maize meal, and consider the most effective way to mitigate the impact of the VAT increase on poor and low-income households.

Under its amended terms of reference, the panel may also receive and consider submissions on the zero-rating of new “non-food” items. Its previous mandate only referred to the consideration of additional zero-rated “food items”. Of particular interest seems to be the potential inclusion of sanitary products, which currently attract VAT at 15%.

The panel has to submit its report on July 31.