Calls for big VAT changes in South Africa

The Consumer Goods Council of South Africa (CGCSA) has called for the National Treasury to reintroduce the expansion of the list of zero-rated basic food items urgently. 

This call was made to the Parliamentary Select and Standing Committee on Finance. The council said expanding the list was vital to supporting lower-income households and ensuring food security. 

In his Budget Speech on 21 May 2025, Finance Minister Enoch Godongwana reversed the planned expansion of the list as the initially proposed VAT hike was withdrawn.

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

“I want to assure the public, and this House, that the aim of the 12 March 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 May Budget, Godongwana confirmed the reversal of the proposed increases in the VAT rate in 2025/26 and 2026/27.

“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 means the list will still not contain any form of meat, and offal from sheep, pigs, goats, and poultry will no longer be added. 

The other foods to miss out on being added to the list are canned beans and peas, as well as dairy liquid blends. 

This reversal also contradicts President Cyril Ramaphosa’s pledge to make significant changes to the list as part of a series of measures to ease the financial burden on South African households. 

This list currently includes basic foods such as brown bread, maize meal, milk, rice, vegetables, and eggs. 

The list was last expanded in 2018, following an extensive analysis of the impact of any expansion by the National Treasury.

Calls to expand VAT-exempt items

On 28 May 2025, the CGCSA called for National Treasury to urgently reintroduce the expansion of the list of zero-rated basic food items in the draft tax legislation expected to be published shortly for public comment.

CGCSA’s legal, regulatory and stakeholder engagement executive, Neo Momodu, submitted that expanding the list of zero-rated food products will enable poorer households to afford more healthy and nutritious food.

While the council welcomed the decision not to increase VAT, this led to the withdrawal of the Finance Minister’s decision to expand the basket of zero-rated food items to ease the burden of food costs on the poor and the vulnerable. 

Momodu said this decision is particularly concerning for the CGCSA and its members because many South Africans are hard hit by the cost of living. 

The zero-rating of the additional products would have gone a long way toward cushioning consumers, improving healthy eating and lifestyles, and improving food security.

“Although there is no doubt that the decision to retain the VAT rate at 15% results in benefits to consumers, this ‘win’ for consumers must be properly unpacked,” Momodu said.  

“It has merely avoided one of the potential additional direct costs that consumers carry by maintaining the status quo. This ‘win’ has not created any positive means to reduce the existing burdens on financially vulnerable households.” 

Momodu explained that maintaining the status quo is inadequate and will not provide any tangible difference to vulnerable households. 

“It would be an unfortunate outcome if the traction gained with regard to expanding the list of zero-rated items were to be lost because of seemingly erroneous and misplaced ties between expanding the zero-rated list and further tax increases,” she said.  

“These two things are mutually exclusive, and each bears interrogation on its own merits.”

The CGCSA previously bemoaned the financial impact of the government’s first implementation of a VAT increase and then its reversal for retailers in South Africa. 

It explained that these companies would have spent millions of rands implementing the changes on their billing and point-of-sale systems, only to have to reverse them. 

Food retailers experienced a double blow, as they had to make changes to implement the VAT increase and expand the zero-rated treatment to specific products. 

All of this was ultimately for nothing as the National Treasury ultimately reversed both of these decisions.