How to cope with the VAT hike
The recent tax increase is a big blow to consumers - but there are ways to save and make life more affordable
IT’S nothing short of depressing. In the days leading up to 1 April South Africans’ cellphones pinged with messages from service providers informing us we’d be paying more for just about everything after the VAT increase came into effect. This is the first time since the dawn of democracy that VAT has gone up, rising from 14% to 15% as the government scrambles to find a way to pay back its R23 billion debt to the World Bank.
This means the price of many of the products we eat and drink have gone up too, stretching cash-strapped consumers even further every time they set foot in a supermarket.
There has been much criticism of the VAT hike, which will hurt the poor the most.
But economist Mike Schüssler says the government has exhausted other revenue streams, such as income tax and company tax, which are already stretched to the limit.
“VAT is one of the ‘easier’ streams of revenue because it’s tax that’s levied on products consumed by the general public,” he says.
“The problem is we have a low economic growth and the government isn’t curbing spending.”
Rob van der Westhuizen, a market researcher at credit bureau Compuscan, says the hike will be devastating to a broad section of South Africans.
“Due to the current economic climate and high levels of poverty and unemployment the rise will have a huge impact on many household budgets.”
Now is the time to be more cent-savvy than ever.
What is VAT exempt?
The government has exempted 19 basic foodstuffs from VAT (see page 92 for the full list), including brown bread, mealie meal, rice, dried beans and lentils, canned pilchards, milk, eggs, fresh fruit and vegetables and vegetable oil.
VAT is also not charged on non-fee-related financial services such as interest, life insurance premiums, medical scheme premiums and pension and retirement annuity fund contributions. But service fees are taxed, which is why your bank charges have gone up.
Educational services provided by the state or approved institutions are also VAT-free. This means fees at all registered crèches, schools, after-school services, universities and colleges won’t go up.
Residential rental accommodation is also VAT exempt – so if your landlord or landlady tries to raise your rent by 1% you can tell them it’s illegal.
But the same doesn’t apply to holiday rental accommodation – the tax on this will go up to 15% as it’s a service provid-
ed by a third party. And if you have a company that leases or sells property, you have to pay VAT, Schüssler says.
WHAT CAN YOU DO TO COPE? Buy smart
Rethink the contents of your fridge and cupboards, advises Sonelle van der Linde of the Association of Dietetics in SA.
Meat and poultry might have been goto proteins in the past but items on the exempt list can provide you and your family enough protein for less money.
Eggs, dried legumes (such as beans, lentils, chickpeas and soy) and pilchards are high in protein. Peanuts and peanut butter – while not VAT exempt – are also an affordable source of protein, she says.
“Focus on other VAT-free foods too such as fruit and vegetables and brown bread. When it comes to mealie meal, the government stipulates it must be fortified, so important nutrients such as vitamin A, iron and zinc will be plentiful in your diet if you include this staple.
“The government keeps healthy and essential foods VAT-free to encourage people to buy these products, which is a good gesture on their part.”
Change it up
Get VAT wise. For example: A loaf of white bread costs R1 more than VAT-free brown bread. A 119g can of tuna costs R19* as opposed to R9 for a 155g can of VAT-free pilchards in tomato sauce. A 410g can of baked beans in tomato sauce costs R8,99 while a 500g packet of
Five cans of 400g pilchards at R16,99 each cost less than 1kg of mince (around R92,99) – and you can make many more meals with 2kg of pilchards than you can with 1kg of mince, Van der Linde says.
Pilchards are great in pies, kedgerees and pasta dishes and are loaded with protein and healthy fats (see recipes on the next page).
If your family are desperate for red meat, bulk up 500g of mince with beans, lentils and vegetables.
MORE WAYS TO SAVE
If you’re battling to make ends meet, take a look at things such as your DStv package, Van der Westhuizen says.
Consider switching from a full bouquet, which costs more than R800 a month, to the cheaper DStv Family bouquet at R249 a month. You’ll still have access to 75 channels at a saving of more than R500 a month.
If you have a gym membership, consider changing it to a cheaper version. Virgin Active clubs, for instance, offer more affordable monthly packages if you’re able to work out during off-peak hours, or if you stick to one gym near you instead of opting for the all-gyms package. Charges start at R225 for limited access, compared with up to R900 for full access.
Examine your cellphone contract. If you find you don’t use all the data you have on your package, speak to your service provider about switching to a cheaper package.
Also consider cancelling your contract when it’s up for renewal and going on the pay-as-you-go option instead. You’ll have more control over what you spend.
And you don’t have to go for a more expensive phone when you’re due for an upgrade if your old phone is still in good working order – many service providers will reduce your payments if you stay with your old phone when you renew your on contract. *Prices approximate at the time of going to print. YOU shopped around to obtain a general average of prices. EXTRA SOURCES: NETWERK24, STATISTICS SA, MONEYWEB
Altogether 19 foodstuffs are exempted from VAT, including canned pilchards, eggs, brown bread and vegetables such as potatoes. VAT-free dried beans costs R14,99 – but goes much further than a single can of beans.