The head of the ANC’s economic transformation subcommittee says that the government plans to expand the zero-rated VAT food basket in an effort to shield vulnerable households in South Africa.

During a media briefing on October 26, Mmamoloko Kubayi, who heads the African National Congress (ANC) economic transformation subcommittee, announced the government’s plan to expand the zero-rated VAT food basket.

The statement was made during a special ANC National Executive Committee meeting at the Birchwood Hotel in Boksburg, east of Johannesburg, where economic challenges, transport issues, employment concerns, and the high cost of living were among the topics addressed.

Ahead of the Medium Term Budget Policy Statement (MTBPS), Kubayi emphasised the party’s commitment to easing the financial burdens faced by South African households amid rising costs and economic strain.

”Expanding the zero-rated VAT food basket is part of our bold step to alleviate inflation on basic food items, protecting both low-income and middle-class families.

“These efforts are a testament to our commitment to making essentials affordable and accessible,” she said.

Kubayi stressed that keeping inflation in check, particularly on staple foods, is key to creating stability and reinforcing public trust in South Africa’s future.

In his July 2024 Opening of Parliament Address, President Cyril Ramaphosa highlighted similar concerns, promising that the government would seek ways to lower the costs of basic necessities for South Africans.

Broadening the VAT-exempt food list was one approach proposed to meet this goal.

Currently, the zero-rated VAT list covers 19 items, including brown bread, maize meal, milk, rice, vegetables, and eggs.

The last expansion of this list was in 2018, following a thorough analysis by the National Treasury that narrowed thousands of proposed products down to six items identified as most beneficial for low-income households while minimising revenue impact.

However, Deputy Finance Minister David Masondo raised concerns over the feasibility of further expanding the zero-rated list.

According to Masondo, while zero-rated products effectively target those in need, extending the list could result in substantial VAT revenue loss.

Masondo explained that, from an economic standpoint, it might be more effective to allocate funds to existing pro-poor government programs rather than increasing the number of VAT-exempt items.

He estimated that the government loses over R30 billion annually due to the current VAT exemptions on the 19 essential items, which complicates the matter.

As VAT is the government’s second-largest revenue source after personal income tax, comprising 26% of total tax revenue, further reductions would have significant fiscal implications.

Masondo argued that direct cash transfers to low-income individuals could be more effective and redistributive than VAT exemptions, which tend to benefit high-income households disproportionately.

Despite these concerns, other stakeholders contend that the list of VAT-exempt items should be expanded to include a broader array of basic foods.

Advocacy organisations such as the Pietermaritzburg Economic Justice and Dignity Group (PMBEJD) have called for 44 items to be zero-rated.

Sibusiso Mboto, PMBEJD’s Advocacy Coordinator, argued that the current basic food basket is unaffordable for many.

The PMBEJD monitors the cost of a nutritional food basket for a family of four, which includes 44 items.

According to recent data, a food basket containing these items costs around R5,290 in Cape Town and R5,486 in Johannesburg—figures that are prohibitive for low-income families, many of whom rely on a single minimum-wage income.

Mboto highlighted that even households earning the national minimum wage (NMW) often face a monthly shortfall of close to R2,000 when basic living expenses, including transport and utilities, are considered.

Given this situation, he welcomed the ANC’s proposal to expand the zero-rated VAT food basket as a positive and much-needed intervention.

The debate surrounding VAT exemptions underscores the difficulty of balancing fiscal sustainability with immediate public needs.

While expanding the list of zero-rated items could provide relief for struggling families, it would also challenge government revenue that funds essential services.