Mboweni’s cake flour zero-VAT plan backfires on the poor

Finance Minister Tito Mboweni’s VAT zero-rating juggling game on cake flour has not worked for the poor, who are still reeling under the weight of expensive prices caused by increased consumption tax on non-food items.

A new study released yesterday has found that, in addition to the existing items that excluded VAT, the exclusion of VAT on cake flour hasn’t had an impact on the food baskets of struggling South African households, because most of their groceries were still being taxed anyway.

According to the research by Pietermaritzburg Economic Justice & Dignity (PEJD), a civil society body doing consumer research and fighting for economic justice among the low-income households in KwaZulu-Natal, the addition of cake flour to the list for zero-rating resulted in a saving of R2.16 on the food baskets of households living on low incomes.

This changed nothing because more foodstuffs in a single food basket included VAT.

In the research, PEJD found that the total cost of the April 2019 household food basket was R3 076.76. This meant that even with cake flour now excluded from VAT, this made no difference to the affordability of low-income households, who had to fork out more due to the increased VAT charged on other foods.

PEJD’s basket was designed with women living on low incomes in Pietermaritzburg in mind, and included 38 basic foods and the volumes of foods which women living on low-incomes try and buy each month for a household of seven members.

The body said from April 2019, 19 out of the total of 38 foods in the household food basket are subject to VAT.

“Foods subject to VAT make up more than half [53%] of the total cost of the household food basket and cost R1 618.05. The VAT on the total household food basket came to R211.05 in April 2019. This means that 6.9% of the household food basket is made up of VAT,” it said in a statement.

Explaining its calculation, PEJD programme coordinator Mervyn Abrahams said they included and tracked the cost of 10kg of cake flour, which in March cost R75.82 on supermarket shelves. The same item in April was down by R2.16, or 3%, to R73.66.

“All things being equal, off the March 2019 price, we should have seen the April 2019 price decline by 15% to R65.93, resulting in savings to consumers of R9.89.

“Instead, the introduction of zero-rating on cake flour has resulted in savings to consumers of R2.16. Zero-rating cake flour as an intervention to mitigate the impact of a rise in the VAT rate, as our data shows, has not been successful,” Abrahams said.

VAT increased from 14% to 15% in February 2018.

For more news your way, download The Citizen’s app for iOS and Android.