Identifying additions to the list of zero-rated items

Even professors ask for extensions – the chair of the VAT review panel, Prof Ingrid Woolard, can attest to that. Unlike many struggling undergraduate students, they often get them.

I thought of this as I reflected on the task we, alongside eight other panel members, were given by the National Treasury to consider an approach to mitigate the effect of the one-percentagepoint rise in VAT announced in February’s budget.

Scope and deadline changes are the nature of such an inquiry, especially when a panel consists of members with very strong views, as ours had.

My views on the merits and inevitability of the VAT increase are well documented. It is a regressive tax and makes the system of indirect taxes (and the overall tax system) generally regressive. It hurts the pockets of the poor. I accept, however, that zero-rating mitigates some of the regressivity. To what extent it does this is important.

I was asked to serve on a panel that would consider whether the existing 19 items that carry no VAT were sufficient, and if not, to suggest food and nonfood items to add to that list. We were required to consider expenditure items that are disproportionately consumed by the poor.

We had to look at issues of compliance, ease of administering the suggested tax changes, market structure in key product markets, the possibility of retailers passing through lower prices, and the estimated revenue loss.

Many tense meetings, submissions and deliberations later, the panel arrived at the six items suggested: white bread, white flour, cake flour, sanitary products, school uniforms and nappies.

Individual submissions included merit goods such as school uniforms and books and necessities such as sanitary products. The latter was the most suggested addition to the list of items that are already zero-rated.

Sanitary products, the panel felt, should be free at “the point of use” so that access is not dependent on the ability to pay.

Many women will still be unable to access these products at the retail price implied by the zero rating, and government expenditure interventions should ensure targeted and convenient access, free of charge — like the condom dispensers one finds everywhere.

It wasn’t just about the numbers. If it was, then your favourite pack of cigarettes, snuff and beer would have made it on to the list.

Some items, despite being able to pass certain methodological “tests” outlined in the VAT report, didn’t make it onto the list of recommended items, due to support for their consumption being misaligned to existing government policy.

We were also concerned about the possibility of any consumer savings from zerorating being “captured” by producers and retailers along the value chain, rather than being passed on to consumers. With SA having concentrated product and retail markets, there is little competitive pressure to pass on the zero rating.

The release of the panel’s report on Friday was met with mixed responses. Some felt the measure was inadequate to address what was a bad budget policy decision, and that the recommendations were long overdue for sanitary towels and nappies, for example.

Many of the responses reflect widespread misunderstanding of the tax landscape in SA.

One of my learned friends, who works as a parliamentary researcher, asked why we had proposed the zero-rating of white bread when brown bread was more nutritious? The simple answer: brown bread is already zero-rated.

THE REAL CRISIS OF SA IS THAT ACCESS TO A PRODUCT, EVEN IN THE ABSENCE OF THIS TAX, IS NOT ASSURED

Products that are subjected to the fuel levy, such as petrol and diesel, are also zerorated. Moreover, sizeable and recurrent monthly expenditures by poor households on services such as residential rental accommodation and public road and rail transport are exempt from VAT.

Zero-rating is just that: a retail price without the 15% VAT. The real crisis of SA is that access to a product, even in the absence of this tax, is not assured. These breadand-butter issues require complementary expenditure side interventions and the strengthening of the existing social wage interventions to reach where they are needed the most.