Home Tax Zero-rated VAT items could result in a tax increase

Zero-rated VAT items could result in a tax increase

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Taxes risk going up in the mid-term budget if there is a revenue gap due to additional zero-rated VAT items.

Ismail Momoniat, Treasury’s head of tax and financial sector policy addressed related questions to the zero-rated VAT items. Treasury released a report stating that items such as, white bread, bread and cake flour, sanitary products school uniforms and nappies should be zero rated. They expressed that producers should in no way benefit from zero-rating.Allowing for these zero-rated items to be implemented could result in R4.8 billion tax revenue lost. Treasury is currently running numbers to see if the revenue gap will only be R4.8 billion or if it could possibly end up being more.The medium-term budget will be where the issues of the revenue gap will be addressed. In the case where there is a gap, the minister could possibly announce an adjustment in expenditure or tax.

Fin24 states “It could be a concern. VAT was raised to close the budget deficit. Now we’re going the other way, so the hole won’t be plugged.”

Next years mid-term budget will further include details on how to fill the revenue gap. A possible fix to this could be that they will not allow all six items to be zero-rated. The question however is how they will choose which items are needed most. Bread and flour are important items but so are items that will get children through school such as uniforms and sanitary products. The prices of nappies are also unaffordable to the poor and by lowering the price it could make a big difference.

An important question is, by what margin will the tax go up if all items are zero-rated?

AW would like to know what you think of these zero-rated products and whether you think it should be implemented despite the possibility of tax increasing?