Improving the targeting of zero-rated basic foodstuffs under value added tax (VAT) in South Africa - An exploratory analysis

Stellenbosch Working Paper Series No. WP07/2012
 
Publication date: 2012
 
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of the Western Cape)
[protected email address] (Department of Economics, University of Western Cape)
 
Abstract:

VAT without any exemptions or zero-rating is regressive. Since the inception of VAT in South Africa, there has been an ongoing debate around the issue of zero-rating to alleviate the burden on poor households. This paper uses vegetables as an example and conducts tax incidence analyses to compare the relative burden of VAT on vegetables for various income groups. It finds that differential treatment of the zero-rating of VAT on various categories of vegetables could be beneficial in terms of relative equity gains. It is suggested frozen vegetables remains zero-rated, whereas canned vegetables and some fresh vegetables items be zero-rated.

 
JEL Classification:

H2, H24

Keywords:

Value added tax, expenditure patterns, regressivity, zero-rating, equity gain, optimal targeting, basic foodstuffs, sub-categories of vegetables, South Africa

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BER Weekly

30 March 2020
Late Friday night, Moody's downgraded SA's foreign and local currency sovereign credit rating to Ba1 - one notch below investment grade - following a scheduled ratings review. Tragically, SA also recorded its first COVID-19 deaths and cases surged to over 1 200 during the week.In financial markets, the SA Reserve Bank (SARB) announced it would start...

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