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

11 November 2019
Notwithstanding the apparent optimism surrounding President Cyril Ramaphosa's second Investment Conference last week, economic data released for Q3 disappointed. The consumer turned notably more pessimistic during the quarter, while the latest activity data from the country's secondary sector also paints a dismal picture for GDP. On the global front,...

Read the full issue