14% price hike of some brown breads

A proposed technical amendment to the VAT Act could see consumers pay 14% more for certain categories of brown wheat bread, including whole-wheat brown bread, high-fibre brown bread, high-protein brown bread and brown health bread from early 2018.

Currently, consumers buy these food items at a price inclusive of 0% of VAT (zero-rated), instead of the standard 14% applicable to most goods and services.

PwC Africa’s Charles de Wet explains that when VAT was introduced in 1991, brown bread was considered a “merit good” and qualified to be zero-rated. The bread regulations effectively meant that all categories of brown bread were zero-rated items for VAT purposes.

A Practice Note previously issued by the SA Revenue Service (Sars) implied that whole-wheat brown bread, high-fibre brown bread, high-protein brown bread and brown health bread were considered brown bread and qualified as zero-rated items, but the note was subsequently withdrawn. An updated version of the bread regulations, published earlier in 2017, effectively amended the definition of brown bread and includes various subclasses of brown bread under the class ‘brown wheat bread’.

“These subclasses represent bread that is baked using brown wheat flour and classifies ‘brown wheat bread’ differently from ‘brown bread’,” De Wet says.

The most recent Taxation Laws Amendment Bill proposed a technical correction to the VAT Act to define brown bread in terms of the updated bread regulations, but didn’t replace the term ‘brown bread’ with ‘brown wheat bread’.

“The result is that certain categories of brown wheat bread, namely whole-wheat brown bread, high-fibre brown bread, high-protein brown bread and brown health bread, which qualified to be zero-rated under Schedule 2 will become standard rated (14%) on implementation of the Taxation Laws Amendment Bill, 2017,” De Wet says.

Certain categories of brown wheat bread will soon be taxed at 14%. Charles de Wet PwC Africa