As calls persist for the government to add more food items to the zero-rated VAT basket to ease pressure on consumers after the recent increase in the fuel levy, finance minister Enoch Godongwana says there is no need as economic conditions are easing.
NGOs, businesses, and labour federations say the higher fuel levy, which kicked in this week, will increase the costs of goods and services.
But Godongwana told Business Times there was no immediate need to use the zero-rated goods list to provide additional relief to low-income households as fiscal and economic trends were easing pressure on incomes.
“People who are talking about the cost of living must talk about the issues that impact [it]. If you see how... inflation is going down and the interest rate is going down, all of those things combined have implications for the cost of living and no one takes those into account.”
The fuel levy will see tax on petrol increase to R4.01 per litre for petrol and R3.85 per litre for diesel. The hike is expected to realise R23bn in revenue in the medium-term.
This week, the fuel price decreased by 19c for petrol and by 50c per litre for diesel.
Godongwana said the price of fuel would not increase substantially due to the Treasury’s work in tandem with the department of petroleum & mineral resources in the determination of petrol and diesel prices.
“We co-ordinate with the department on the ... fuel price, so that these things must coincide. What they have done is to reduce what they call the base price ... it has no implication on the levy. The levy will still go up.”
Godongwana spoke to Business Times on the sidelines of an appearance in parliament for a joint meeting of the standing committee on finance and the select committee on finance to consider the fiscal framework for the 2025 budget.
In their adopted report, the committee noted the withdrawal of the additional zero rating of food items, which was intended to cushion poor and low-middle-income households against the VAT rate increase.
“The committee also notes National Treasury’s position that zero rating is a blunt instrument and its preference to support poor households through direct expenditure measures.
“Considering that the revenue forgone is only R2bn, the committee recommends that National Treasury should consider expansion of VAT zero-rated basket as a relief on the high cost of living for poor and lower-middle strata.”
Izaak Breitenbach of the South African Poultry Association asked the joint sitting to consider a proposal for the exemption from VAT of frozen bone-in chicken portions as well as fresh and frozen offal.
“South Africa has one of the highest rates of stunting in the world among children under 5-years-old, with a rate in excess of 28.8%. In poorer households, this rate is 36%. More than a third of our children are stunted.
“Stunting is defined where a child’s height is more than two standard deviations below WHO [World Health Organisation] child growth standards. Stunting causes irreversible physical and cognitive deficits. It was estimated that stunting causes 9% lower GDP in countries in Africa and Asia.”
Dropping the VAT hike has not created any positive means to reduce the existing burdens on financially vulnerable households
— Neo Momodu of the Consumer Goods Council
Neo Momodu, the Consumer Goods Council of South Africa's executive for legal, regulatory and stakeholder engagement, said though retaining VAT at 15% would benefit consumers, it merely avoided one potential additional direct cost to consumers.
“This ‘win’ has ... not created any positive means to reduce the existing burdens on financially vulnerable households. Maintaining the status quo is simply not adequate to provide any tangible difference to vulnerable households, or to manifest the socioeconomic obligations on government to deliver food security to all persons, especially protected groups.”
She said the council’s food manufacturing and retail members ensure that basic food items are sold at competitive prices, aware of the impact of food costs on consumers, particularly the poor and disadvantaged.
“It would be an unfortunate outcome if the traction gained with regard to expanding the list of zero-rated items were to be lost because of seemingly erroneous and misplaced ties between expanding the zero-rated list and further tax increases. These two things are mutually exclusive and each bears interrogation on its own merits.”
Matthew Parks, the parliamentary liaison officer for Cosatu, said the ANC-aligned labour federation could not support tax hikes on the working class and the poor who are already highly indebted.
“Whilst appreciating the scrapping of the VAT hike, we remain deeply distressed that for two years in a row personal income tax brackets have not been adjusted for inflation. This will see workers at the margins of the next tax bracket in danger of paying higher taxes when receiving their annual increases. This trend must be reversed.”
He said the decision to not extend VAT exemptions on additional food items or provide further fuel price relief was regrettable and urged the government to pursue additional measures to cushion indigent households, in particular by expanding free electricity and water.
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