Ramaphosa backs move to exempt more food items from VAT

President Cyril Ramaphosa has thrown his weight behind a proposal to expand the basket of goods exempt from VAT, a move aimed at addressing the lingering economic hardships faced by South Africans.

“Among the measures to ensure that all South Africans have affordable access to sufficient food, the government is looking at whether the basket of food items that is exempted from VAT could be expanded to include more basic products,” Ramaphosa said during his annual address to the National Council of Provinces.

The idea has been on the table since at least 2018 when an independent panel of experts was tasked with advising then-finance minister Nhlanhla Nene on extending zero rating. They recommended that six additional items should be exempted from VAT. 

But it has gained more attention in recent years, especially after the Covid-19 pandemic tossed millions of South Africans into poverty. It has the potential to polarise economists and policymakers, with some likely to see it unaffordable given SA’s fiscal constraints and debt levels. The Treasury collects about R400bn annually from VAT receipts.

Its cheerleaders are likely to deem it as an essential step to help reduce poverty, and inequality, which are some of the root causes of social discontent and frustrations that some business leaders have warned could boil over into political unrest.

The government of national unity (GNU), a coalition of 10 political parties, faces the daunting task of balancing these fiscal pressures against the urgent need to improve living conditions. The ANC’s loss of majority in the May general elections has heightened the stakes, as it may use the seek to win back confidence in the electorate.

“Food is among the most basic of human needs. Yet, nearly a quarter of households consider their access to food as inadequate or severely inadequate,” Ramaphosa told legislators.

“While the steep rise in food inflation since the Covid-19 pandemic has eased over the last few months, consumers are yet to feel the effects in their pockets.”

Ramaphosa also emphasised the importance of expanding agricultural output, saying it required more effective land redistribution and providing necessary support to beneficiaries to work the land.

The DA responded to Ramaphosa, taking a firm stance against the ANC’s sole stewardship of the economy until recently.

“Under the ANC, promises of a better life for all have turned into a bitter pill for South Africans to swallow. Poverty remains entrenched and the rising cost of living is choking millions of households.

“If we are to chart a path forward, we must break free of the failures of the past ... this can be realised by co-operation from the ANC and DA under the newly established GNU,” DA MP Sonja Boshoff said.  

MK, a party led by Ramaphosa’s predecessor Jacob Zuma, did not respond positively to Ramaphosa’s remarks, saying he should shoulder some of the responsibility for SA’s economic stagnation. 

“People are no longer falling for your well-crafted speeches that promise the world and deliver nothing. While you are here (talking), people are not doing well out there. If you want to tackle poverty, you have to do more,” MK MP Mmabatho Mokoena said.

“Mr President, your administration has presided over an unprecedented economic stagnation, institutional decay." – BusinessLIVE