Report: VAT should be removed from all basic foods

The May Household Affordability Index, conducted by the Pietermaritzburg Economic & Justice Dignity Group, has found value-added tax (VAT) exemptions have not done enough to help low-income South Africans.

VAT exemptions haven’t helped

Speaking to eNCA, a representative of the group, Mervin Abrahams says the increasing cost of living due to rising electricity and water costs makes it almost impossible for low-income households to buy healthy food.

While the debate rages on whether government or the private sector should take the reins in driving job creation and economic growth, poor families continue to struggle to put food on their tables and VAT exemptions have apparently done very little to alleviate this issue.

Research published on their Facebook page alleges the price of food exempt from tax has come down by as little as 3% when it should be at least the 14% that VAT added on in the first place.

“When we look at, for instance, the median wage for a black South African worker it is R3000. Our food basket of 31 very basic foods alone comes to R3000. So basically, there is just not enough money, wages are too low and unemployment is just too high,” Abrahams told eNCA.

“What we have seen is that the [VAT] zero rating of 19 foods and it has brought the basket down by about R25.

“But when we look at the basket of food that ordinary South Africans would like to purchase then we still see that about 7% of that basket, or roughly around R209 out of R3000 is going to VAT.

“So what we are saying is value-added tax should be taken away from all basic foods. Not just from a few foods.”

The economic spiral

Abrahams also spoke of a developing situation in low-income areas that should cause alarm bells to start ringing all around the economy: Skills and entrepreneurial spirit are not an issue, there flat out just is not enough money.

“Most people in the townships will tell us that there are young people with the necessary skills and the entrepreneurial spirit in order to produce goods and services,” he added.

“The difficulty that these young potential entrepreneurs experience is that no-one in their communities is able to purchase the goods or services they can produce.

“What we are finding is that there is just not enough money in the local economy in order to stimulate what could become consumer-led growth.”

Not just a question of money

As Abrahams goes on to explain, this issue could have far reaching effects on the South African economy as children who are not fed nutritious food can become stunted.

“I think [nutrition] is an area that is becoming of particular concern,” he said. “When we look at the fact that about 30% of all boy children under the age of five are stunted.

“Stunting in most cases is irreversible, so essentially all our investment into education, all our investment into health – and great investment is being made into those two areas – will actually go to naught for all those children.

“Nutrition directly contributes to productivity and the economy. It directly contributes to the educational outcomes that we will see later on in life. So if families are not able to produce nutritious food… then, in a sense, we are crippling the potential for economic growth 10 years down the line.”