Big VAT changes for South Africa expected next week

Experts at Deloitte expect value-added tax (VAT) changes in the upcoming Budget, even if the tax rate stays the same.

Speaking at a media roundtable, several experts at Deloitte said that it is unlikely that VAT, personal income or corporate taxes will be increased due to the heavy tax burden already placed on South African consumers and businesses.

An increase in the VAT rate from its current 15% would also disproportionally affect the poor the most in South Africa, even if it is seen as the easiest way to increase the state’s coffers from a tax perspective.

Experts said that the main way that the National Treasury will increase tax revenues will lie in improving SARS’s capabilities to collect, with a particular focus on technological investment.

That said, the experts believe that there could be an increase in the zero-rating of certain products.

Zero-rated goods are products that are exempt from VAT and currently include 19 basic food items, farming inputs, goods that are subject to the fuel levy and residential rental accommodation.

The Deloitte experts said that zero-rating can offer long-term relief for households in distress.

This is because once items are added to the zero-rated list, it is incredibly unlikely that they will be removed.

They added that the zero-rating of certain products is expected when Finance Minister Enoch Godongwana delivers the 2025 Budget next Wednesday, the 19th of February 2025.

That said, the experts were unsure which items would be added to the zero-rated list.

They noted that the Treasury has a tough task of choosing what goes on the list, with it having to decide whether, for instance, canned food and/or chicken are added to the list.

The zero-rated food products currently include brown bread, maize meal, samp, mealie rice, dried mealies, dried beans, lentils, and pilchards in tins.

Milk powder, dairy powder blend, rice, vegetables, fruit, vegetable oil, milk, cultured milk, brown wheaten meal, eggs, and edible legumes are also exempt from VAT.

The government’s messaging on zero-rated VAT products has varied.

In his July 2024 Opening of Parliament Address, President Cyril Ramaphosa said the government was looking to expand the number of food items exempt from VAT.

This sentiment was reiterated at his annual address to the National Council of Provinces (NCOP) in November 2024.

Mmamoloko Kubayi, head of the ANC’s economic transformation subcommittee and Minister of Justice and Constitutional Development, also promoted changes to the VAT-exempt list, noting that it will help low-income and middle-class families in South Africa.

However, Deputy Minister of Finance David Masondo warned that a significant change in the zero-rated list is unlikely as existing items on the list are well-targeted.

Masondo said that further zero rating will lead to VAT revenue loss, which could be directed to the already existing pro-poor government programmes.

He added that targeted cash transfer to the poor is better and more redistributive than VAT, which mainly benefits high-income households.

Adding phones to the list

At the media roundtable, experts from Deloitte also questioned whether adding certain smartphones to the list Zero-rated could be a good idea.

The government has committed to phasing out 2g and 3g phones by 2027.

However, phones that can only receive 2g and 3g signals start at R150, while 4g phones start at R800.

This could provide serious communication issues, especially for those in rural areas, as low-income households cannot afford the prices of phones.

This could also make SARS’s collection efforts more difficult, as its push into technology to increase revenues will be halted by rural companies struggling to connect online.

The experts believed that the government could thus introduce a zero-rated cost for 4g phones to make them more affordable.