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Tertius Troost, Senior Tax Consultant at Mazars.
Tertius Troost, Senior Tax Consultant at Mazars.

Treasury’s possible challenges following the VAT Panel report

ECONOMIC NEWS

Issued by Epic MSL Group - Aug 14th 2018, 10:57

The recommendations put forward by the review panel on the zero-rating of certain items for Value-Added Tax (VAT), may be challenging for Treasury to enforce.  

This is according to Tertius Troost, Senior Tax Consultant at Mazars, who says that while the panel, led by Professor Ingrid Woolard, has made compelling arguments for the inclusion of several products on Treasury’s list of VAT-exempt items, it could prove exceedingly difficult to ensure that the country’s poor benefit from the inclusions.

“We are quite satisfied with the panel’s recommendation to include sanitary products on this list. Furthermore, while white bread and cake flour do not have as much nutritional value as brown bread, these items are currently consumed mostly by the poor and can be seen as welcome additions to the list. The problem is the impracticality of ensuring that retailers and producers do not simply increase their own profits with the VAT savings, instead of passing the benefit on to consumers.”

He adds that the review panel acknowledged this challenge in their findings. “The panel suggested that Treasury enlists the aid of the Competition Commission, to prevent price fixing in the various industries. However, the cost of regulating tax legislation always needs to be weighed up against the possible benefits. Price fixing is very difficult to definitively prove, and it may cost the Competition Commission too much time and resources to viably pursue this course of action.”

Troost notes that the problem of adequate regulation will also prove to be a major obstacle for some of the panel’s other findings as well. “The recommendation to declare school uniforms zero-rated will first require Treasury to come up with a definitive definition for the term. This could prove tricky in itself when considering, for example, that most schools require pupils to wear plain button-up shirts.”

Lastly, Troost points out that while the panel’s recommendation not to add poultry to the zero-rated list may be unpopular, the decision does have merit. “It is true that there needs to be some form protein on the zero-rated list. However, the panel rightfully argued that since poultry has such a wide user base in South Africa, zero-rating it would cost the country at least R3 billion in tax revenue. In comparison, all of the other items on the zero-rated list combined account for R4 billion reduction in revenue.”

In closing, Troost states that Treasury will inevitably face significant challenges in deciding which of the recommendations to include in the upcoming tax amendments. “The loss of tax revenue, as well as the cost of regulating these additions to the list, will play a significant part in the changes that we will see in future,” Troost concludes.

 

Read more about: sa economy | treasury | zer-rating | tax | vat

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