Treasury has stated it does not support expanding the list of tax-free food items, arguing that doing so is unlikely to provide meaningful relief to poorer households. Based on previous experience, the department believes that such tax adjustments would primarily benefit retailers rather than those in need, undermining the intended policy objectives.
During a recent public engagement on the national budget, Finance Minister Enoch Godongwana confirmed that the Treasury had withdrawn a proposal to increase the value-added tax (VAT) and would also not be adding any new items to the current list of 21 essential goods that are zero-rated. This decision follows pressure from various industry stakeholders and civil society groups, who had called for more food products to be exempt from VAT to cushion the impact of rising living costs.
In submissions made during budget hearings this week, the South African Poultry Association and Clover SA, a major dairy producer, urged Parliament to consider zero-rating products like chicken and dairy liquid blends. These appeals were grounded in the growing concern over malnutrition and the anticipated rise in food transport costs linked to the impending fuel levy increase.
Treasury Rejects Expanding Tax-Free Food Basket Amid Concerns Over Retailer Gains
However, Treasury officials remain skeptical about the effectiveness of this approach. Chris Axelson, the department’s head of taxation, reiterated that zero-rating is a “blunt instrument” that does not reliably benefit the poorest segments of society. Drawing from the last expansion of the tax-free food basket in 2019, Axelson noted that retailers only reduced prices by seven to eight percent — significantly less than the 15% VAT rate that was removed. This means that much of the fiscal relief intended for consumers was absorbed by retail and distribution chains.
According to Axelson, “So the R5 billion that government is losing, about half of that is going to lower-income households, and the benefit of lower prices, and the other half is going either to retailers or the distributors.” This, he argued, makes the zero-rating approach both inefficient and costly from a fiscal policy perspective.
He further explained that the Treasury views the current list of VAT-exempt items as sufficiently targeted to protect lower-income households from the brunt of food inflation. The department has no immediate plans to revise this list, especially in the absence of a VAT increase. Axelson stressed that if there is no adjustment to the VAT rate, further zero-rating is not considered the best use of government resources.
In place of expanding the tax-free basket, the Treasury has highlighted alternative measures aimed at alleviating cost pressures in the food supply chain. Among these is a diesel rebate program that will offer some relief to agricultural producers affected by the fuel levy hike. The initiative is expected to help limit the knock-on effect of higher fuel costs on food prices, thereby indirectly benefiting consumers.
This policy stance underscores the Treasury’s broader strategy of maintaining fiscal discipline while using targeted interventions to address the needs of vulnerable populations. Rather than offering blanket tax exemptions, which may deliver uneven results, the department appears to favor more precise tools that ensure support reaches intended beneficiaries.
Nevertheless, the debate continues among stakeholders and policymakers about how best to reduce the cost of living and improve food security for South Africans, particularly amid ongoing economic uncertainty. With inflationary pressures still present and a fuel price increase on the horizon, concerns about affordability remain high among consumers.
The Treasury, for now, remains firm in its position. It believes that the most effective way to protect the poor is through existing tax policy instruments and supplementary support programs, rather than broadening the tax-free food list. As discussions around the budget continue, this approach is likely to be scrutinized further by both lawmakers and the public.
Source- EWN
