Big VAT announcement for South Africa

The National Treasury has reversed its plan to expand the list of zero-rated food items to include canned beans and peas, dairy liquid blends and certain organ meats from sheep, pigs, goats and poultry.

This means the list will still have no form of meat on it, despite calls for the inclusion of protein sources to try to ease the financial pressure on households and encourage healthy eating. 

Finance Minister Enoch Godongwana confirmed this reversal in his third Budget Speech on 21 May, outlining how the government’s finances will be altered by the retraction of the planned VAT increase.

The National Treasury expects tax revenue to decline by R61.9 billion over the next three years compared to projections in March due to the reversal of the VAT hike and a weaker economic outlook. 

“The budget process this year has been contentious, mainly due to the tax proposals announced on March 12,” Godongwana admitted. 

“I want to assure the public, and this House, that the aim of the March 12 Budget was to balance the necessity of growing the economy, with the equally urgent need to repair and rebuild our public finances. This remains our goal.” 

In his latest Budget, Godongwana confirmed the reversal of the proposed increases in the VAT rate in 2025/26 and 2026/27. 

However, this does not mean South Africans will avoid any VAT pain, with companies having spent millions to ensure they would be compliant with the new rate and then reversing those changes. 

Furthermore, this means that there is no more need for the expansion fo the zero-rated food basket, which was was initially included to help minimise the impact of a higher VAT rate on poorer households. 

“As a result of the VAT hikes being reversed, the expansion of the zero-rated basket, which was included to cushion poorer households from the VAT rate increase, falls away,” Godongwana said. 

This clarity is vital for companies, particularly retailers, who were left in the lurch by the sudden reversal. 

The government then created confusion by issuing a Government Gazette that still mentioned an amendment to Schedule 2 of the VAT Act. 

In a separate statement, SARS Commissioner Edward Kieswetter could not provide further clarity, with no guidance on the zero rating of additional food items. 

Kieswetter was clear that companies have until 15 May to amend their systems to account for VAT remaining at 15%. 

Regarding the zero rating of additional items, Kieswetter merely said that vendors who have already updated their systems to zero-rate the additional basic foodstuffs are encouraged to reverse those changes.

However, the minister’s Budget Speech has now cleared this confusion up, with the expansion of the list of zero-rated food items scrapped.